Redefining Attribution: How DTC Brands Thrive Post-iOS14

Episode Summary

In this episode of the Free to Grow CFO podcast, host Jon Blair dives into the intricate world of scaling DTC brands with a profit-focused mindset. Joining him is Will Holtz, VP of Strategy and Operations at Prescient AI, who also has experience as a co-founder of an aggregator. The discussion ventures into the complexities of data analytics, the impact of iOS 14 on attribution, and how the new tools and mindset in 2024 can significantly help in scaling brands. Will and Jon explore the effectiveness of marketing mix modeling, shifting from last-click attribution, and measuring the impact of top of funnel spending across e-commerce channels. They also discuss aligning KPIs with business outcomes to truly understand the efficiency of marketing efforts. The episode is loaded with insights on improving marketing efficiency, connecting ad spend to contribution margins, and leveraging data to drive better business decisions.

Meet Will Holtz

Will is the current VP of Strategy & Operations at Prescient AI, a next-gen marketing mix modeling platform to help omni-channel brands measure and optimize ad spend. Previously, Will held leadership roles in eCommerce, from running DTC at Recess and co-founding the Shopify aggregator Rightside Brands to working at the data infrastructure startup SourceMedium. He credits his current interests to a combination of his psychology undergraduate degree and his early roles in finance as an investor, where he honed his analytical skills.

Episode Links

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

Will Holtz - https://www.linkedin.com/in/williamholtz/

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

Prescient AI - https://www.prescient-ai.io/

Transcript

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00:00 Welcome to The Free to Grow CFO Podcast

00:26 Introduction to Meet Will Holtz

02:12 Today's Focus: Data Analytics and Attribution in E-commerce

03:31 Will's Entrepreneurial Journey: From Finance to CPG Startups

09:58 Challenges in Scaling DTC Brands: Supply Chain and Marketing Costs

12:07 The Aggregator Model: Lessons Learned and Strategic Shifts

15:58 The Role of Data in Business Decisions

17:50 Attribution in E-commerce: Tools and Mindset Shifts

25:27 Understanding Top of Funnel Impact

26:36 Correlation Between Meta Spend and Amazon Sales

28:03 The Importance of Omni-Channel Strategy

29:03 Marketing Mix Modeling and Channel Connection

34:51 Scaling and Budget Allocation

48:19 Final Thoughts

[00:00:00] Jon Blair: Hey, what's going on, everyone. Welcome back to another episode of the Free to Grow CFO podcast, where we dive deep into conversations with brand founders and industry experts about scaling a D2C brand with a profit focused mindset. I'm your host, Jon Blair, founder of Free to Grow CFO. We're an outsource finance firm that specializes in fractional CFO and bookkeeping services for growing D2C brands.

All right, today I'm here with my buddy Will Holtz. Uh, Will is a friend of mine that I've talked shop on a lot of different, uh, strategy conversations over the years. Off the podcast. And I'm stoked to finally have him on the podcast so that we can talk shop, um, for our listeners here today. Uh, today will serves a company called Prescient AI as VP of strategy and operations.

He's got actually a really awesome background before that, which we're going to dive into, but, um, well, thanks for joining me, man. Happy to have you. 

[00:01:01] Will Holtz: Yeah, it's good to be on this side of the, uh, the house. Yeah, 

[00:01:06] Jon Blair: for sure, for sure. For sure. Yeah. For those of you that don't know, Will's, uh, actually got his own podcast as well.

And, um, so it's always, I was on someone else's last week as well. And it's funny doing both now. I'm like. I actually feel like I'm becoming better at both by sitting on both both sides of the conversation than when I used to just sit on as like actually just being interviewed only. Do you feel the same?

[00:01:32] Will Holtz: It's a, it's actually pretty weird. I feel like I don't even listen when I'm doing the actual interviewing itself until after and I'm like, Oh yeah, that was actually interesting conversation. You're kind of just in the moment trying to facilitate a little bit, but now it's fun. It's, it's fun to do both.

[00:01:46] Jon Blair: For sure. It is weird. Cause like I try to be as present as I can while I'm hosting. You know, you gotta be thinking about keeping the flow going and, and, and, um, you know, looking for areas to like dive into like a, an interesting subtopic, but I do, um, I, you know, um, just truth be told to everyone listening, I do listen to the podcast afterwards always, and I actually learn a lot about myself and about my guests when I'm listening to them because I can be fully present.

Um, so look, what are we gonna talk about today? Today? We're going to talk about a few different things. One, Will's got an interesting background, um, uh, being an operator and an aggregator and actually found a co founder of an aggregator. We're gonna talk about that a little bit. And then really what I want to spend most of the conversation talking about.

Data analytics, but most specifically what I'm calling this new wave or this new mindset of attribution in the e com world. You know, I think a lot of people think about, you hear a lot of talk with the vast majority of brand operators of, Oh, there's pre iOS 14 and post iOS 14. And like, that's the line they draw on the sand post iOS 14.

Attribution sucks. You can't do it. Um, you know, but the reality is there's a new mindset to attribution today in 2024. There's new tech tools. Prescient AI is, is on the forefront of that. And so, um, Will's background prior to Prescient and with what he's doing now over there, positions him really well to, uh, talk about this topic at a deep level.

And so you don't want to miss what we're talking about here, this new mindset, this new wave of attribution. You need to get exposed to it today because you're going to have to leverage it if you want to keep scaling your brand with a profit focused mindset. So all that to say, um, let's dive in. Will, I want to get started though, with your story, your entrepreneurial journey, and ultimately how you ended up where you are today.

[00:03:38] Will Holtz: Yeah. I mean, in terms of my journey, it's always been, I guess, from a profit first mindset, cause I started in finance, kind of did that traditional Into private equity and the businesses I dealt with there were And we're from a helicopter leasing business to data centers to restaurants. So, you know, in that, in that sense, you have to make sure you have a good business first off, first and foremost.

And I learned, I think the most important thing to me coming out of experience was unit economics, you know, does this business make sense to actually run or not when you get to a certain scale, um, and that's kind of the concept of the unit economics. It's been really important since then. Uh, but I always wanted to be an entrepreneur and I always wanted to move over to that entrepreneurial roots.

Uh, and after I went to business school, I ended up, um, I interned one summer at a, at a CPG startup, uh, actually in the Bay area called Grove Collaborative. And this was, you know, at the time of series B company, kind of a growing, fast growing company. And I just had a great experience. I mean, I had experiences, the CEO of Steve Landsberg became kind of a mentor to me, but the, one of the first days that I was in the office, I was coming up with this big business plan, almost like a consulting plan to run, uh, This B2B business for them, they were mostly D2C side of the house.

And he said, this is all really great, but you should just, uh, kind of scrap all your plans that you have and just go door to door. And they were selling natural products, so hand soaps, for instance, like natural hand soap. He said, go door to door and figure out how to sell this product to offices. You know, so I would literally go around San Francisco knocking on people's doors.

I went to Allbirds office, I went to other people's offices and said, hey, Can I sell you this hand soap basically? Uh, and it was very humbling experience because you know, it's, you get a quick feedback, but also people like, well, what are you trying to, why are you trying to sell me this? Uh, and then to learn a lot of interesting threads.

And I think most importantly, it was about, you know, again, you have to put yourself out there, learn very quickly and iterate, uh, which I think has been very true of like this, this space that we're operating in, which is you just have to constantly learn and change, even like the attribution stuff we're going to talk about today.

Um, so that actually brought me, you know, I had a great experience. Uh, when I graduated business school, I joined another CPG company called Recess, um, another kind of CPG darling. And I think in the space initially. Uh, beverages and the like, I was about 10 people when I joined as an intern, uh, and then I ended up becoming the chief of staff, um, to the CEO, which, uh, was also a very interesting role, uh, which you could maybe talk about later.

Uh, but then I, about eight months in, uh, got asked to take over the e com business. So both the DTC business and then eventually the Amazon business. And mainly because I was analyzing, uh, The business running cohort analysis, doing spreadsheet math and saying, here's, here's opportunity in this line of the business, uh, and that was asked, uh, to actually go run it.

Uh, and that was probably my first exposure to this, um, whole crazy world, you know, that we do operate in. And I realized everyone was talking in acronyms, you know, I didn't really know what people were talking about. You know, we're working with an agency and they're telling me ROAS and this and that. I don't even know what this all means.

Um, but let me just go figure it out. Yeah. And that's when, uh, again, the spreadsheet, I think, Magic worked then with the, the platforms and worked with, you know, the, the new tools that are out there. And the first thing I noticed is that there weren't a lot of tools that were aggregating data together, you know, to make it easy for you to actually make decisions across platforms.

And so I looked for about five to six months for a tool that would actually help me do that. And I was just coming up blank and so I was meeting startups at the time. They're trying to figure it out. Um, there's one called polyops at the time. It was a Y. C. company and it turned into title, you know, and then I met sort of coming called source medium, which I became one of the first customers of.

We really liked what the business value was there, which is again, aggregating marketing data, transactional data into one place, helping you analyze it. And that's when, um, you know, long story short, I decided, Hey, this is a really interesting scalable business. If you make the right decisions with data, let me go now figure out, can I actually maybe buy a lot of these businesses together?

And so I started an aggregator with a few other brand founders in the space during the time when the Amazon FBA wave was going on in 2021, 2022. With Thrasio, and we got backed by the same investors of Thrasio to go do that in DTC. We thought DTC businesses are longer lasting than Amazon businesses for a lot of reasons.

And then long story short on that, about eight months in, decided to give investor money back because we did not think it was a scalable strategy. We just didn't really see a lot of profitable businesses out there, uh, that were able to scale, you know, in a dramatic way. And we didn't see a lot of synergies between those, you know, D2C businesses, which was our thesis coming in.

So, of course, we can dive into that a little more, um, but that did lead me to my next two companies. But I'll pause there because that was a lot, a lot to take in. But really data has been like a central part of all those decisions and how I think about, you know, the different opportunities that I've had so far the past few years.

[00:08:35] Jon Blair: Yeah, I mean, um, what an awesome background and there's like, I think one thing that really stands out to me is you, your time as an operator, right? A lot of people who, that one, one problem that I see with a lot of people who understand data analytics, best practices, You know, data warehousing, ETL, like how to build the right infrastructure.

They lack the hands on experience of being an operator. And so they're actually like very far removed from the actual operator who's the end user of the data. Right. And like, so when, when you and I first met, like that was something that. I was very impressed with of just like, here's a guy who's like seeking to like really leverage these tools and understand them, but he's an operator.

Right. And so like one, one followup question I have, and maybe there's, there's probably going to be a few here on the aggregator front. You mentioned like, um, prior to deciding to shut down the aggregator and return the investor money. You made this determination that, like, you weren't finding a lot of brands that were able to scale profitably.

What were you seeing in the economics of the brands that caused you to go, No, no, we can't, we can't scale these profitably? 

[00:09:45] Will Holtz: It's a great question. Um, and there's a few things. So, for one, also, there's a lot of opportunity in these brands. Just, just to, just to be clear. Uh, I mean, there's a lot of inefficiency in these brands.

Especially in the marketing side, uh, which we can go into. But what I did see is for one, we are coming out of COVID or kind of we were in peak COVID coming out. And what was happening was for one supply chain rates were going up dramatically container rates and everything for sure. And so back to the unit economics, the economics change of these businesses.

And the challenge with that is yes, maybe your cogs went up. But it's hard to then also change your pricing to, you know, offset that. And so a lot of these brands, you know, weren't able to raise prices that dramatically. One day to the next, your margins are kind of worse. So that's a big thing. The other thing was, um, just think of it like the marketing, um, space in general, it was getting more competitive to actually market as well in this time.

And so, you know, CPMs, other thing were going up, so acquisition was even harder. Again, your cost per acquisition goes up, economics get a little worse. That's, that's a little more difficult for you to buy a business. And then I would say the harder parts were figuring out the people side of it as well, which was in the end, like one of the core thesis I think of buying a business like this is that.

You don't have to have a lot of people to actually help manage it. Um, and when you take out the founder, for instance, that's actually really hard to do because the founder actually is doing a lot of things across the business. You don't even realize that. And so just, you have to add in more people than you actually realized to kind of own certain different domains, um, in, in the business.

And so. The people cost was even pretty high. So it was the cogs, you know, supply chain costs. It was both acquisition costs with marketing, which are two kind of the biggest line items. And then the people's the third biggest probably in this area. And those were getting all hit, you know, so totally. And the last thing about buying businesses and expectations of the owners Their value of their own business was actually really high in this period because it came off this amazing demand cycle with a lot of organic demand.

So everything looked better and they were saying, well, look at my business. What it was before you sell your business to start to kind of recede, you know, down to the baseline that there were before. But owners didn't want to think like that. They want to say, Hey, it's always going to be like this forever.

Um, so expectations were also just pretty off in general. And I said the last point, the very, very last point is why these, these models were very challenges that. The capital structure is also really difficult for a lot of these businesses where a lot of working capital, you have to basically fund inventory, fund marketing, and eventually get a return on that.

So as those times for inventory expanded because the shipping rates and container, it took six months to get a, you know, some goods or to order a lot in advance. You hold it in your warehouse. That's a big drain on your, your cash. And then all of a sudden you see people, you know, that they're funding.

These aggregators are funding with debt. And so you have to pay interest on the debt, but it's very expensive. And so all of a sudden you have a mismatch between you have to pay interest on debt today, but then you get future potentially returns tomorrow or way out there. You have a big gap in like how much you actually can fund these aggregators.

And so we're just, you know, Yep, that's why these aggregators had to raise so much money, you know, just to even get to the point they were at a certain scale, and they're still not profitable. For sure, they had to 

[00:13:07] Jon Blair: plug that gap between the return and the debt service. You know, it's interesting, I was the COO and CFO of Guardian Bikes during this time, and I was actually, You know, I had been at Guardian slash surestop either part time or full time for quite a while and I was getting the itch to go do my own thing and I was going to do it a year earlier, but, um, going into the beginning of 2021, all these dynamics you're talking about, the market, we're like, And we're hitting us as a fast growing DTC brand and an outdoor product, which was like took off even more than many other product categories and econ during COVID.

And so I actually had to stay around for a whole year just to, just to get us being the COO and CFO, the one who understood the dynamics of all those things you just talked about turns on marketing. Uh, return on marketing spend, inventory, how, how costs were going up all over the place. I mean, supplier costs beyond freight forwarding was going up left and right.

Oh, the cost of aluminum just went up. Oh, the cost of steel just went up. You know, POs that were already cut and accepted. And before they got shipped, the factory going, dude, the cost of, the cost of steel has gone up considerably since we accepted this order. Uh, we have to charge you more and we weren't expecting that, right?

And like, I mean, it was, it was insane. And you know, we were, uh, we kind of me and the, and the CEO, Brian Riley, like we, we split, um, kind of divide and conquer. I kind of ran the company as interim CEO basically for a year while he went out and equity fundraised. And I focused on getting a brand new, fresh piece of debt capital in the business to fund those daily working capital needs.

And like, we, we did a little bit of around, got that, you know, multimillion dollar line of credit in place. And then it was like, okay, now we're stable enough coming out of 2021 for me to replace myself with a CFO and, and kind of make the move, but like, it was a very crazy time, I mean, I mean, there's probably a whole podcast episode just telling the war stories, seriously.

It just 

[00:15:08] Will Holtz: goes to show, you know, you could be incredibly fast growing company, but all of a sudden you need, you need money. Right. And so that's, that's the value that you guys provide also towards it being the CFO suite and strategic CFOs. That's usually like the missing link. You know, I've seen in a lot of these companies as well is that where there's so much opportunity ones that we're trying to buy because they weren't looking strategically at how can they unlock their business.

For sure. With smarter financial decisions, with better capital structure, with more funding, because usually why these businesses were so interesting is that a lot of them are just underfunded. They don't have capital to go out and buy inventory or make marketing decisions that are more experiments or bets or even expand to a new market like Amazon.

You know, that does require a little more handholding. That's what we did. We actually found that pretty successful. Is we would actually try to, you know, bring DTC brands to Amazon. And it does take a little bit of like initial, you know, kind of working capital. It takes a little, a little, a little time, but it was actually really efficient for a lot of brands that already had like this latent demand that they were there.

And this is, this goes to attribution, by the way, you know, you have latent demand that you're pushing out there from Meta and TikTok and all these other channels. And Amazon is like a brand search, you know, kind of sure Haven. And so if you're not capturing that demand, all of a sudden, like you're just losing Money, like you're, you're, you're leaving on a table.

And so we, we look for those opportunities a lot. And we're looking for acquisitions of who's actually driving a lot of DTC, but has a really good opportunity in Amazon. Well, 

[00:16:40] Jon Blair: it's funny that you mentioned this. So I, once a month, I, I batch our podcast recordings. I was talking to, to Jeff, my partner, Jeff Lowenstein, who's a mutual friend of, of Will and I's.

And, um, actually, Will's the one who introduced me to him. We, um, We were talking about Amazon and talking about like how to expand from DTC to Amazon and that like, you know, I have several clients that I work with who have very heavy top of funnel spend and didn't have Amazon on at the beginning and when they just simply turned it on, even FBM, not even have the prime badge or anything like that, just drawing PL inventory, right?

Their blended marketing efficiency very clearly went up. And so what that told us is there's people seeing those ads that didn't, wouldn't buy on the Shopify store for some reason, not to mention that there's probably also net new customers who didn't even see the ad on, you know, top of funnel, um, it, you know, one of the top of funnel channels who are going and buying the product.

And so like, it's, it's, um, thinking about, well, segues nicely into some of the attribution stuff I want to talk about here is that like. because Prescient and Free to Grow have a couple of mutual clients. And like, I think one of the things that both of the mutual clients we have have struggled with at times is like thinking about, you know, thinking about the attribution of their two different e commerce channels, Amazon and their website.

Because in reality, top of funnel spend benefits all right that's one big hot topic on the attribution front but then there's also just this general kind of like attribution mindset like i i i kind of preface at the beginning of the episode is like you tend to find This is a generalization, but like it rings fairly true.

You either find a founder who's like attributions, dead iOS 14 screwed everything up. What can we do? Or ones who are like, they're really trying to seek, like what's the next level of sophistication here? Is it a tech product? Is that a mindset shift? Is it, what, what is it? It's a little bit, in my opinion, it's a little bit of both.

It's a mindset shift. And, and looking at what tech is available out there. But we talk about this new way of thinking through attribution, both tools and mindset. What are the, some of the things that come to mind 

[00:18:58] Will Holtz: for you? Yeah, um, obviously a very deep topic. Uh, and back to like why I'm even a Prescient, you know, and my, my journey is that I've only looked for companies that have solved problems that I've wanted to solve myself or want to solve as an operator.

It was the same thing with source media when I was there, uh, in terms of solving kind of a problem aggregating data. And I met Preston as a partner of SourceMedium because I was looking for who can activate this data, who can actually use the data we collect to actually help to make decisions. This goes back to the fundamental view of like, what is attribution?

And I think it's funny, I think attribution even is like not even the best word to think about this stuff. It's how do you measure the efficiency of what you're doing at all times? So measurement is like what I've come to understand is like, what are the measurement solutions for you? And you could measure, you know, yourself by saying, Hey, the blended returns on your business.

You said blended efficiency, that's a measurement. That's like a formula of measurement. Blended returns across channels. Another form of measurement that's become very popular pre iOS 14 was Multi touch attribution, MTA, which means, hey, what can I understand the purchase journey from me as a user across different touch points and eventually to the purchase?

And that's what's been really challenged by this iOS 14 issues because you can't really track the journey as well as you did before. And that's where, you know, like Northbeams and TripleWells, they did a really good job of creating a market around this, but have now, you know, seen the light of a different form of measurement coming around, which is, uh, marketing mixed modeling, which is.

I, I heard about marketing mixed modeling and then two years ago, and I got really interested in why I got interested in the first place is that this really comes down to like, how do you track, um, different data points and back to the point of the MTA, you track it based on clicks based on a pixel based on you put on your site, you can actually then track the user journey.

Uh, as we know, it gets more challenging with marketing mixed modeling. It's more about taking first party data and so it's just data that you've actually collected already. Let's say transactional data that lives within Shopify or Amazon, a purchase has happened in a day. That's transactional data. Then you have your marketing data, which is spend, how many impressions you get, potentially how many clicks you get as well.

And it's really, all it is, is looking for the statistical relationship between those inputs, i. e. let's say spend. And then revenue on the day. It's a statistical model saying you spent on this day and you likely then got a return and this is likely where that return came from based on the model that we've constructed.

So why I really like that concept is that it's future proof. It's something where you're always going to be collecting data from these platforms. And you don't need pixels in order to do this type of, um, math. And again, it's pretty much math in the end. And so that's where, um, coming back to the question about attribution and why it's changed, and what's different is that the, the, the fundamental problem is the same.

You want to basically understand what's my effectiveness of my, my ad dollars. But the method of data collection is different. The method of how you actually think about that analysis is different. And then what's also different about today's market mix models is they're a lot faster than they used to be.

Uh, and they used to be, this is a 1950s, 1960s technology that used to be used for billboards and radio and everything else used to be offline kind of spend. Now it's being used because data is more accessible. We could run, at least at Presha, we could run these models daily. Usually it's for other players, it's maybe weekly, monthly, quarterly.

And it's a very dynamic way to market. Um, and we could talk about it more, but top of funnel is kind of the bread and butter for this type of thing, because the relationship between top of funnel, i. e. like impressions being served and eventually to revenue is actually very strong if you can actually measure that.

And that's a big reason why I got super interested in this, is that the effectiveness of your top of funnel spend has just not been measured, I think, in an effective way up until this point. Yeah, 

[00:22:53] Jon Blair: it's super interesting. Um, man, there's a couple, there's like several different ways that we can go with this.

I think, I think first off, what are some of the mistakes when a brand comes to Prussian, right? What are some of the common kind of like mistakes that you're seeing about like how they are thinking about their attribution or the expectations of attribution at that time? 

[00:23:16] Will Holtz: Yeah, um, I would say that there's not like real mistakes.

I think it's just learning and education and, uh, in the end, like we often say that we're not the one size fits all solution. We're not the source of truth in the end. And I think that's a mistake looking for like the one size fits all solution. That's going to be what you use in entirety. And it's different situations where you should be using different tools and different methods.

But also like you should trust your own, like you're the marketer in the end, you know your business better than anyone else. You know the levers you need to pull. Also, if something looks wrong. And that's what I've seen the best marketers do, is that something intuitively looks wrong. Use it as a way to question and say, what, what can I, what else can I use to basically help me understand whether I'm wrong, potentially I should look at things differently or mm-Hmm, , something is wrong with this model or this measurement.

Or maybe the data coming in is not, you know, is, is a little funky 'cause these are, these are only good as the data coming in. You have to remember that as well. Um, I'd say the, the biggest opportunities are, I see a lot of people coming in with last click as like kind of their. They're sweet spot, um, comfort zone, which is, uh, been very challenged by the switch to GA4 for instance, where people are so used to this last click mentality and they might see high return on, you know, Brad spend.

I still see this to this very day. It's when I started at like brand, my, my agency was pushing brand spend constantly. And not all brand spend is bad, by the way, so I want to also say that some brand spend is good to keep, you know, yourself top of the listing. It can still soak up some demand, but oftentimes it's usually one of the biggest, like, most inefficient buckets, right, that you're spending in.

But it feels comfortable because your returns look high. So, the thing I see is, you know, relying on that as the sole form of measurement. Versus just one of those forms of measurement to say, yeah, my intuition tells me that Google brand search or Amazon even ads is basically soaking up credit. Where do I think the actual credit should be attributed to?

And that's where you start answering or asking questions and then start using other tools to say, well, what can actually help me measure? My top of funnel more effectively or not. Is it incrementality test, which is good? Yep. Is it something like a marketing model? Great. Is it my blend of returns? As I spend more of my meta ads, I see my blend of returns still staying pretty flat or coming down a little bit.

That's also a form of measurement because you know intuitively for some brands that are even smaller You don't need a marketing mix model to tell you that if you only have meta and Google as like your channels, let's say 

[00:25:44] Jon Blair: Yeah, so that makes me think of how I kind of set this up with the two two of the mutual clients We have like true that they both have tried to seek to understand more about The top of funnel impact the top of funnel spend impact on both their shopify store and their amazon store, right?

Because they have both And both of them have at times asked me like hey Jon It like kind of like feels like we're spending on amazon for no reason right now and that really it's all coming from our from our top of funnel like What are some ways or tips that, you know, brands can think about, like they're really driving a lot of awareness with their top of funnel spend, how to think about how Amazon versus Shopify might be ultimately contributing to the effectiveness of that top of that top of funnel spend.

[00:26:34] Will Holtz: Yeah, I mean, it's something I wanted to solve for, you know, when I was an operator and it's honestly like depression does this really well. Uh, not not selling my own book too much. But it's, like, we measure the relationship between top funnel spend off of Amazon, on Amazon. Um, which is, which has been great for a lot of operators because again, back to intuition, some people actually have run, I've seen spreadsheets from brands that I've worked with where they've run their own correlation analysis saying, as you've increased spend, I'm on, let's say meta, I'm seeing a lift and my Amazon sales as well.

So that's like a, again, a nice little gut check, but then we actually have a model that does. Statistically, you know, say that, Hey, expanded impressions, increased on meta tick tock and everything on more of you based channels. And it's actually throwing it and rise. And there were redistributing credit away from Amazon as well, though, that you actually.

Or are actually right, let's say about that scenario, but when I've seen so far across clients, mostly is that you get to a point where if you do have a channel, if you do have a funnel spend, and you do have somewhat of a brand, you're always going to get that. And one of the ways you also can look for that is you can just do like a jungle scout search as well.

Look for, we're searching for your brand, you know, on Amazon as well. Um, and that's another big, big thing you can do today. I think you're, you know, you're right for it. But yeah, I do think these mechanics models do a really good job. It's giving you some comfort around some of those numbers. 

[00:28:07] Jon Blair: Yeah, it's funny you mention that because there's a, there's another brand that I work with that has been spending really heavily on meta for a couple of years and, um, before they got Amazon, um, fired up like about at the beginning of this year, they did some, um, some search term, um, kind of like research on, uh, on Amazon.

And it was very clear that people were searching their product left and right. And they didn't have the product available on Amazon. And so they were going and buying similar devices from other brands, quite likely. And, and it, you know, the thesis was we, yeah, we've been spending on meta for a couple of years, very aggressively.

Like, of course, people are going on Amazon and looking. Then when they turn Amazon on a few months ago, um, I mean, their blended MER across the business skyrocketed, like even more than they thought it would, you know? And, um, absolutely. It's really important for brands to understand the connection between the channels.

Like that's one thing that is, um, I don't know, I could be wrong. I'd love to get your, your take on this, but like I don't personally know a ton about media mix modeling yet. I know some because some of the brands I work with have exposure to it. It's something that I want to seek to understand it at a much deeper level.

But like, I think it sounds like from my understanding, one advantage of it is it pays homage to the connection between channels. Like when you look at the other kind of like, you know, click based, it very much makes it, it very much makes it feel like the channels are separate, right? And like they're almost competing against each other.

But the reality is like Marketing 101, it's all connected, all of it's connected, right? And so like, Uh, like, it sounds like this new way of, of, of modeling again, it pays respect to the fact that it's, that it's connected. Do you agree? And I, how can you riff on that? You can join 

[00:29:56] Will Holtz: the marketing team if you want.

I mean, that's, that's like a perfect, that's like very well said. I mean, that, that is the challenge is that it's very siloed pixels or siloed based on Like DTC heavy, like if you're a DTC heavy business, again, like extremely DTC heavy, and you're only advertising on more like these click based channels, it could be still a good tool for you to use because they're daily, they're updating daily, it's very dynamic as well.

So I wouldn't shy away from still trying to use it as one of your Like quivers that you have, but yeah, I agree with you. Relying on it too heavily is going to be challenging. And also the cool thing about marketing models and pressure doesn't use today, but we're going to be getting to the futures.

We're going to bring in retail channels and other channels that also have an impact. So it's not even just your online channels. Your retail is going to be impacted by your media swept and for a lot of CBG brands, especially out there where retail is a much bigger component, but they still want to drive, you know, off on shelf velocity.

They want to shut, they want to drive velocity for their retailers, for everyone else. And so that's going to be really effective is how do you use a meta or anything else like that, or CTV or other channels to basically drive retail? Uh, huh. That's pretty huge. Um, and that's what I'm most excited about is like this pure omni channel view of like everything's just symbiotic in the end the customer is going to shop where they want to shop, but you want to drive them and you might want to even drive them geographically and region and everything else like that.

There's a lot of targeting you could do online that you can't really do in store, which makes it a very effective channel for that. 

[00:31:29] Jon Blair: That's actually really timely that you brought that up because I've been talking with a couple of guests on, on the show for the last couple of weeks about expanding into retail and like, um, the thing is what, what, um, and actually, you know, I can't take credit for this.

This comes from, uh, from my buddy, Ryan Rouse, also a mutual friend of ours. He says like, look, dude, if you want your, your brand to hit a certain size, generally speaking, 50 plus million a year in revenue, you have to ask, you have to expand outside of DTC. There are very few brands who can do 50 plus million, um, DTC only.

Right. And so certainly there's Amazon, but let's just say to do 50 plus million, you quite likely need to expand beyond e commerce. Right. And, and I'm saying that because like, One, there's no problem. There's nothing wrong with building a profitable brand that does less than 50 million and staying D2C.

That is great and awesome, especially if you've got like this really kind of narrow niche and you just crush it D2C. But if you've got aspirations to grow 50 plus million retail. Probably inevitably is a must at some point, right? It just, it's, there's only so much Tam DTC and only so much Tam on Amazon.

And so like we'll just said, you have to meet your customers where they are, but here's a beautiful kind of advantage of being a DTC first brand. If you're crushing it top of funnel. You can drive traffic and sales in these brick and mortar retail locations. And so like when I think about, I think about the early days of EECOM, I was talking about this with one of, uh, one of the guests that in our retail conversation, like a couple of weeks ago, like early days of EECOM, when you were just like the first brand to sell that product on EECOM, It felt like, or at least there were stories, maybe they weren't all true, but it felt like you could get to 50 million a lot easier D2C only.

Right today, all the competition online, like you're going to go retail. And the reason why that's important to understand is because like, you actually can drive some of that demand in a way that like a, a retail first brand really can't. Right. And so I think the future, I think, I think the, the seven, eight, nine years ago, you could build a nine figure brand D2C like, um, much easier.

But today the nine figure brand that started D2C is omni channel like bottom line. So when you talk about the marketing measurement, Of becoming a nine figure brand. It sounds like marketing mix modeling like is a, is a must because like you, you, or like one, you need to understand how, how you're, how you can drive sales in these new channels that you open up.

But. It's, it's, it's like a, it's a strategic lever. Like, how do you, you, you, you use the analogy of a quiver. Like, how do you like really load up your DTC marketing prowess and use it to crush it in retail? You know? And so like, I'm seeing more and more that like, if you want to build a big brand, I'm talking about retail and Amazon and talking with guys like Will right now, because like, You've got to think about your big digitally native brand as being omni channel and you got to think about it today before you're 50 million because you don't want to get there and figure it out, you 

[00:34:44] Will Holtz: know?

Yeah, there's so much to that and I totally agree with that, all those things you said. But I think what's also really important is that you need to be comfortable with your budget. And how do you scale your budget, which is really important when you're going omni channel and something that like marketing mix modeling, you know, it's not just getting numbers and saying, here's your ROAS, right?

It's actually optimization as well, which is if I have a budget, how do I allocate it in the right manner? We have an automatic optimization tool that will allocate your budget based on saturation points of your campaigns. And so, you know, where should I be pulling back and spending more on? And once you feel confident that you're getting your highest return, let's say on a campaign and you're.

Economics are good, like your economics are good, then you start scaling. And that's what we've seen with the best brands out there is that you get comfortable with your base, you get really strong, you start scaling from there. And then, because also retail economics are not going to be better. Like, typically, they're going to be a lower margin product.

However, you get more scale as a result of that. So, That's why it's really important to understand your own product and understand, like, how can you acquire customers? What is your margins on your product? The gross margins on your product? How is that going to be different in retail versus online? And that's going to then help you how to think about directing strategy.

And I think the last point, the data point on this is that, like, I've seen a lot of these brands that expand to retail, they're doing like impression brand free frequency and reach campaigns, like really more top of funnel stuff. And that might not look good for your econ business if you're kind of putting it all together, blending those stats together, because that's not going to have an online return for you.

But that's why you need a whole view of the business because if you're just looking at that and saying, I shouldn't spend on these campaigns because it's not having direct impact on my sales today. That's when you get challenged, you know, if you don't feel confident about that relationship between spending that online spend on top of funnel and actually getting a longer term return, let's say in retail.

Um, which is really, really important for your growth. For 

[00:36:41] Jon Blair: sure. For sure. Um, you know, another thing that is not necessarily tied to this conversation about like, um, attribution and, or like marketing or, or the media mix modeling. Sorry, some people I talked to call it media mix modeling. It's Mark. I don't know.

[00:36:58] Will Holtz: I think my marketing team told me I had to call it marketing mix modeling, but I was calling me to mix modeling, but it's interchangeable. Yeah, 

[00:37:04] Jon Blair: I was talking to someone, I was on someone's podcast last week and he's like, do you call M E R or Mer? He's like, I call it mayor. I'm like, Oh, you know, I call it whatever you want.

Marketing 

[00:37:13] Will Holtz: is 

[00:37:13] Jon Blair: percentage of sales. Yeah, exactly. Yeah. Um, I, the, the, uh, COO, I think he's the president now over at Nectar, uh, mattress. He calls it marketing cost of sales. And I actually, he was an advisor to us at Guardian and I kind of latched onto that. Cause it made sense to me, marketing cost of sales and as a percentage of revenue, definitely.

Um, but, um, what, what I was going to say is, um, We talk a lot as fractional CFOs for D2C brands about like connecting contribution margin dollars back to the efficiency of your marketing, right? And like one thing that we are starting to see with brand founders is, as I'm sure you see over at Prescient, is that like we understand certain concepts and same thing with you guys over there and like your tools do some.

math that like you're, the operator doesn't need to understand that stuff like in the weeds, but they have to have like a somewhat of an understanding of like how these things, how these drivers are interconnected and produce certain outcomes. Um, but the implementation for us of like understanding the connection between marketing efficiency and contribution margin dollars, we understand it really well, but Implementing that with the operators were really learning how to do that better and better and better.

And one thing that we're finding is the partnership or lack thereof between the operator and like, say the founder and whoever's actually doing the media buying, right? Whether it's an outside agency or it's someone in house and getting them to use your advice and your tool to produce the outcomes that are best for the business.

You might have the operator who understands one thing. And the, an ad buyer understands a different thing, right? And really, you can't have one without the other, or you're gonna run into issues. You're ultimately not gonna have an outcome that aligns with, like, expectations. One thing we have shifted to, or starting to shift to internally, is to say that, like, Hey, we want you to understand that there is a range of marketing efficiency, um, of marketing efficiencies that get to the same contribution margin dollars because the plug is scale, right?

How much can you scale your ad spend? And what we found is that when you give an ad buyer just one marketing efficiency metric, to stay within when they inevitably are not, they're scaling ad spend and that they start falling below that they freeze generally speaking. And they may not realize that if they were tooled up with knowing that like, Hey, even though marketing efficiency has dropped, you're on the path to scale enough that it's actually going to produce more profitability for, for the business.

And so we're moving to this kind of sensitivity analysis. Type of like model where we give a table to the brand and the ad buyer and say, look up the marketing efficiency that you think you're going to hit and then look up the ad spend that you need to spend at that efficiency to hit the margin dollar goal that we have for the month.

What are your thoughts on thinking about, you know, really, I'm sounding this in the marketplace. Stop setting one target and just holding yourself to it. You need to set a guardrail, but know the different scenarios that lead to the same outcome. Bottom line. What are your thoughts on that? 

[00:40:29] Will Holtz: Yeah, it's, um, it's interesting.

I like, I like that approach. I think it's, yeah, I do think it's challenging when people have one goal in mind in one number in mind. Uh, and that's, I agree with you, scale is the most important part and it's like, also, what do you want to do? Like, what is your strategy for the next period of time? Like, is it to become profitable or is it to, to grow a top line or is it to become efficient?

So it's, it's all these different things where you do need, I think, really good people that provide that advice. I think the point that you made is how do you connect like a metric to the end goal, which is let's say revenue or profit and like selling the connection between the two, I think is really what will help.

In the end, because all these numbers are really don't mean anything. And that's what I think, like, a lot of these numbers don't mean anything. If this is not your target, it's if it's ltd, if it's like long term customer, you can then share it. So that's why I think it's a little challenging to communicate it with the other boundaries.

I still think the most challenging spaces, there's too many acronyms, too many acronyms. Mer is an acronym that didn't, to be honest, be around, like, it's just, it's the inverse of a finance term, you know, marketing is percentage of sales that we just said. And like, it would be a lot simpler if we just kind of set it out there versus like abbreviating it.

But I think there's a lot of, that's what I've seen in the space, a lot of ways to obscure information versus just being very simple and directive. If you gave a grid, exactly what you're saying, and that's what your bottom line is going to look like. You know, that's how much cash you're going to have in your bank, you know, at the end of the month.

Perfect. Get this strategy. And I think people probably should do more like retroactive analysis and say, what did I fall in? You know, based on these metrics, were they the right metrics to measure, you know, initially to get to my outcome or not? And that's what I've seen again, in talking to the best operators that I've seen on my own podcasts that I've been doing, they are so outcome driven versus, um, KPI driven, if that makes sense.

And then the KPIs are very flexible based on what the outcome looks like. Well, 

[00:42:35] Jon Blair: I mean, the whole point of a good KPI of a good set of KPIs is it's a mixture of leading indicators and lagging indicators. And the leading indicator should be have a cause and effect relationship to the lagging indicator outcomes that you're trying to drive.

Right? And so that's what you hit the nail on the head from my perspective, which is like, We're not just trying to, like, measure these empty metrics, we're trying to say if these metrics are showing up throughout the month, here's what you expect by the end of the month, right? Um, but understand that, like, rule number one of setting a forecast is you're not going to hit that forecast.

Like, I'm really becoming less, I'm more and more bearish on saying like, when an ad buyer is like, Hey, what should I spend and what, and what should my, my return be? I'm like, well, listen, we can set a direction because like, yeah, inevitably when you're trying to scale spend, you, you do have an endpoint that you're trying to get to.

I'm fine with a setting a direction, but you've got to be tooled up with scenarios because we're not going to hit that single point. We're not going to hit that single combination of return on ad spend or Emmy or whatever you want to use. We're not going to hit that single point of revenue and ad spend.

We're not. So it's okay to set up the month to try to get there. But when we inevitably in week and of week one, week two, week three, are not on track for that. We want to tool you up to know what? Where could you end up? Could you still hit your goal? Your bottom line goal? If scale ends up being different, right?

You want to give them levers because what I just see, unfortunately, especially in the agency world, but I mean, in house ad buyers are plenty guilty of this as well as like, I mean, and dude, to their credit, I have empathy for this. They're, they've been, they've been beat up so often by brand founders getting to the end of the month.

And the ROAS or the MER or whatever was way off. And. Like the brand founders like what the heck are you guys doing? Why did you do this? this was the goal and Oftentimes if they went one layer deeper and looked at what contribution margin dollars ended up actually being you might find Sometimes not always but sometimes the ad buyer actually did something better for the bottom line or maybe they didn't but no one is able to to to bring the the the continuity between revenue ad spend and And bottom line profit dollars.

And that's what we're really seeking to do a lot of times. Like we're helping with other areas in the P&L, but we work with profit focused, scaling DTC brands. So what are we talking about? A lot revenue ad spend bottom line. How are they all connected? And like that communication is so key. 

[00:45:19] Will Holtz: Yeah. And that's what I love about, you know, Free to Grow and, and kind of what you're doing, which is if you stay at a top line KPI metric, and then you're not getting to the outcome in the end.

And the KPI, as you said, is just meant to be an indicator for you to understand how to actually evaluate your business and comes back to measurement, which is how are you even measuring row as how are you measuring these different things you're not measuring in a way that's effective anymore. Maybe you were using a pre iOS MTA, you know, kind of tool and you're if you're still using that number.

You're you're driving the wrong way at this point, like in my opinion, um, and you might feel comfortable with that. Same thing with last click. Um, it's a comfort thing in the end, but it's not necessarily going to drive the results you need. Um, so that that's what's been really challenging. And what I would say for those people that are actually doing that, it's again, you're not doing things wrong.

Maybe open to trying things differently, look for ways to expand like your education around these different tools that are out there and then use the tool that's best for you and your situation. Sure. Not every tool is going to work. Um, and I think that's always what I say about the other tools. When I evaluate them, the spaces, even our own tools, like ask the right questions, get confidence before you make a decision and don't necessarily just listen to everyone else in the space.

You know, saying this is the best next thing, uh, do your own research, you know, in the end and make sure you're making the best decision for your own brand. 

[00:46:42] Jon Blair: Yeah, I mean, some of the best advice I keep talking about our buddy Ryan Rouse because he's got a lot of wisdom, but like, he's, he is a guy that I really look up to in terms of going like, hey, you don't have to be like every other brand out there, like, figure out what metrics are your North Star.

Right. And define that and make sure everyone on your leadership team is aligned that those metrics are our North Star and make sure they're all using the same definition. If, if they're using the definition of MER for ROAS, You know what? Whatever. I'm not going to beat you up on that, but just have the same definition.

Yeah, whatever. Exactly. Yeah. Find your definition, align on it, and, and then you're good. Who cares if other people call it something different? We call some things different at Free to Grow, but we're, we're, we're aligned on what it means. And, and, and we're aligned like will said on the connection to the outcome that you're trying to drive.

That's what's most important. Cause at the end of the day, Why'd you start a business? You started a business to change the outcomes in your life one way or another, right? So like, that's what we're all here to try to help generate. So yeah, 

[00:47:41] Will Holtz: benchmarking only gets it too far. I think in the end, benchmarking can also lead to you into like kind of the wrong direction if you're not benchmarking against again, like no, no two companies are exactly the same.

So that's where also I see some caution is, you know, be aware of benchmarking. Again, it's a useful as a way to think about, you know, maybe trying to make some answers, but just be wary that not every business is the same. Markings would look very different 

[00:48:04] Jon Blair: across the board. 100%, 100%. Well, um, I feel like we could chat for, I mean, the rest of this year, uh, you and I on episodes here, um, there's a, so, but I'm going to have to cut us here.

Um, we're at the land, the plane before we, we end. I always like to ask a personal question. And so, um, just want to ask you, like in this season of life on the personal side of the house, what's something that you're, you're really loving these days? 

[00:48:33] Will Holtz: Well, I'm loving, hopefully my first kid coming, you know, in a few weeks.

So that, that's been a nice, uh, way to prepare. But you know, I love that for that. My wife has just been incredible, you know, throughout this whole kind of journey so far. And I just appreciate like having some personal life and especially, Even like in the, in the Chris sense, um, in my current job at Prescient, like they're very family first, family focused, and I've, I've really appreciated that.

Which is like make time and carve out time for, for what you need to do personally. So, uh, that and a bunch of the sci fi books I've been reading. It takes my mind off all this other, other stuff that I'm doing across the 

[00:49:11] Jon Blair: board. Dude, I love that. I love that. Well, congrats to you and your wife. I'm super excited for you.

Um, I mean, as you know, with my, my three little kids, it's, uh, it's, uh, there's no greater journey than being an entrepreneur and a parent at the same time. It's like, uh, they're both very entrepreneurial in their own right. For sure. And, um, I know you guys are going to crush it, um, really quick. Where can people find more info on Prescient and on you?

[00:49:39] Will Holtz: Yeah. Um, starting with Prescient, uh, it's very hard to find us, uh, cause our website domain is not great. Hopefully I'm gonna change it at some point, but, uh, Prescient, um, dash AI dot IO is, uh, the website. Uh, I'm mostly on LinkedIn. So I do post thoughts from here and there, and I do have a podcast, uh, called Dont VLOOKUP.

Uh, with, with friends, uh, across the space. So hopefully that's also for data driven, you know, operators out in the space as well. We do talk a lot about a lot of the concepts that Jon talks about, but no, I appreciate you, Jon, for having me on. It's been a, it's been a fun one. 

[00:50:12] Jon Blair: Absolutely. Don't VLOOKUP, you have to check it out.

I mean, one of the best podcast, uh, names of 2024 for sure. I love it. When I saw you guys launch it, I was like, yes. I mean, being an Excel power user myself, I was like, this is amazing. Exactly. There you go. Um, but thanks for joining. We'll, uh, definitely check will out, um, on LinkedIn and, um, look, if you want other helpful tips on scaling a DTC brand, consider following me, Jon Blair on LinkedIn, and if you're interested in learning more about how Free to Grows e commerce accountants and fractional CFOs can help your brand scale alongside healthy profit, cashflow, and confidence, then check us out at Free to Grow CFO.com. Hope you guys enjoyed today's episode and until next time scale on.

Mastering Amazon for DTC Brands Part 1

Episode Summary

In this episode of The Free to Grow CFO Podcast, host Jon Blair, founder of Free to Grow CFO, is joined by his co-founder and Amazon expert Jeff Lowenstein to break down the basics of Amazon and explore how it can be used as part of the growth strategy for Direct-to-Consumer (D2C) brands. Jeff shares his extensive experience with Amazon, from working on strategic finance at Etsy to leading M&A at Boosted Commerce. The conversation delves into the differences between Vendor Central and Seller Central, the pros and cons of Fulfillment by Amazon (FBA) versus Fulfillment by Merchant (FBM), and the strategic reasons for expanding into Amazon. They also discuss the financial nuances and cash flow considerations essential for making the transition successful. Tune in to learn how Amazon can be a part of your overall strategic growth, balancing both near-term sales and long-term brand equity.

Meet Jeff Lowenstein

Jeff was previously leading M&A efforts at ecommerce aggregator Boosted Commerce where he was the 5th employee. He built processes across M&A, finance and operations to support rapid growth from 0 to 30 brands under management in 2.5 years.

He previously co-founded and exited an app for Shopify merchants and spent time in the Strategic Finance departments of Etsy and Caesars Entertainment. Jeff holds a BA from the University of Pennsylvania and an MBA from Harvard Business School.

He’s worked with hundreds of brands over his career and founded Free To Grow because of his passion for supporting entrepreneurs and helping them succeed. The analytical and financial tools he has developed over the years are specifically crafted for the modern consumer brand.

Episode Links

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

Jeff Lowenstein - https://www.linkedin.com/in/freetogrow-jeff/

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

Outlive: The Science and Art of Longevity, by Bill Gifford and Peter Attia - https://peterattiamd.com/outlive/

Episode Transcript

00:00 Welcome to the Free to Grow CFO Podcast

00:30 Introducing Jeff Lowenstein

03:39 Jeff's Journey: From Etsy to Boosted Commerce

07:07 The Birth of a Partnership: Jeff and Jon's Story

13:29 Deep Dive into Amazon Strategy: Vendor vs. Seller Central

18:30 The Realities of Selling on Amazon: Opportunities and Risks

24:11 Building a Brand on Amazon: Strategy and Differentiation

28:48 The Journey from D2C to Amazon with Guardian Bikes

30:45 Navigating Vendor Central Challenges and Transitioning to Seller Central

32:44 The Financial Nuances of Selling on Amazon

35:39 Strategic Use of Amazon: FBA vs. FBM Explained

53:08 Final Thoughts

[00:00:00] Jon Blair: Hey, what's happening, everyone. Welcome back to another episode of the Free to Grow CFO podcast, where we dive deep into conversations with brand founders and industry experts about scaling a D2C brand with a profit focused mindset. I'm your host, D2C Blair, founder of Free to Grow CFO. We're an outsourced finance firm that specializes in fractional CFO and bookkeeping services for growing D2C brands.

[00:00:27] Jon Blair: Alright, today's a big day. Why is today a big day? Because I've got my good friend, brother, as I call him all the time in text messages, co founder, partner in crime, psychologist, therapist, whatever you want to call it, Jeff Lowenstein, on the show with me today. Hoping this is the first of many of Jeff's appearances.

[00:00:49] Jon Blair: Jeff is coming on today to help us talk about Amazon as a sales channel. Jeff's got a deep background in Amazon. I'll let him give his story in a few [00:01:00] minutes. But Amazon is one of those channels. That as a D2C brand is always top of mind if and when you should consider expanding into Amazon. And so I've got Jeff on board with us today.

[00:01:13] Jon Blair: Jeff, thanks for taking time out of being a dad of a little baby and joining me on the show. What's happening, dude? 

[00:01:21] Jeff Lowenstein: Thanks Jon. Finally, finally made it on and happy to be here. Definitely. This will definitely be the first of many and and yeah, hopefully people enjoy listening to us jam. About e commerce topics.

[00:01:34] Jeff Lowenstein: I mean, we're, we're talking about all this stuff all the time on the phone. So hopefully it'll be helpful to bring it you know, to the audience here. And you know, you forgot that we're in a business marriage, right. To add to your list of titles there. So D2C and I spent quite a lot of time together trying to build free to grow and, clients [00:02:00] in the best way possible.

[00:02:01] Jeff Lowenstein: So, it's been a good partnership and I'm excited for the future, for, for our business and for our relationship and friendship as well. So absolutely. Cool. 

[00:02:13] Jon Blair: Absolutely. It's funny because what we're going to basically be doing right here is recording. About an hour of like what my life and Jeff's life looks like on a typical day of us just riffing on different e commerce and and scaling topics.

[00:02:30] Jon Blair: So, really quick, why should you care about what we're talking about today? Because as I mentioned, if you're a D2C first brand, one of the easiest places, and I'll say tempting places, to consider sales channel expansion. First is Amazon. We've been talking the last couple of weeks about retail. There's a place for retail expansion in your strategy, depending on your goals, the pressing go on that, turning that on the operational challenges, the finance challenges, the [00:03:00] shift in mindset, much different than considering an expansion into Amazon.

[00:03:04] Jon Blair: So this is very important for you to understand the basics of Amazon. And to understand how it's different and maybe the same as D2C and how you can use it strategically to enhance your growth and ultimately enhance the brand the blended. cross channel, multi channel profitability of the company.

[00:03:22] Jon Blair: So before we get into chatting about Amazon, just like we always like to do, I'd love, Jeff, for you to run us through your story, and then ultimately ending with how we met and how we joined forces. For sure. 

[00:03:39] Jeff Lowenstein: For sure. And feel free to ask me to speed up, right, if I if I go on too long, but I, let's see, I've been in the e commerce business Since I worked at Etsy over in Brooklyn, I was there for a few years on the strategic finance team.

[00:03:58] Jeff Lowenstein: And so we did [00:04:00] anything that the CFO needed. That's where I learned about what is a marketplace, what is, e comm and how is it different than retail? You know, who are these merchants and what are their businesses look like? And Etsy is a pretty special place. It's a unique player in this econ world, it, it's kind of the anti Amazon in a lot of ways, right?

[00:04:22] Jeff Lowenstein: All the goods are unique and the that's, that's their heart and soul, right? And they really try to stay true to that. Whereas Amazon is built for efficiency and mass produced products, right? So very interesting, contrast there, but anyways, that was a great learning experience. I, I helped, team.

[00:04:50] Jeff Lowenstein: I was, I was dealing with the marketing team. I was dealing with the international team very closely among other responsibilities. So, so learned quite a bit about e commerce while I was doing that. And then I got an MBA after, after Etsy and worked on a Shopify app while I was doing the MBA. And I am not a product person is what I learned, but I learned a lot, a lot, a lot through that experience and got familiar with the whole Shopify experience.

[00:05:21] Jeff Lowenstein: Ecosystem and that was a really eyeopening experience as well to learn a lot about all the tech solutions that are on the market and, and have empathy as well for our, our friends and partners who are building SAS. And, you know, so, so I know quite a bit from that experience and then most recently before joining D2C, I was the 5th employee at one of the e commerce aggregators.

[00:05:48] Jeff Lowenstein: This one was called boosted commerce. It's based in LA, but I was, I was working remotely from New York and I helped lead the M and a team. So I was responsible for finding brands, [00:06:00] finding entrepreneurs wanted to sell their brand, negotiating the deal, doing the due diligence, and then finally integrating and helping to operate.

[00:06:10] Jeff Lowenstein: The brand into the portfolio. And so we grew from zero to, you know, nine figures, nine figures in revenue, extremely quickly in a way that you can't, scale organically. Right. It was, a real, a real crash course in, in Amazon brands, direct to consumer brands, really dissected the financials of those acquisitions.

[00:06:37] Jeff Lowenstein: And, and other targets as well that we did. And so was able to take some of that experience with me and some of those playbooks that we built out with me as well. And so that's a story probably for another day, right? That could be a whole podcast on its own. Some of the, some of the, the, war stories from being on the front lines of the whole [00:07:00] aggregator craze.

[00:07:02] Jeff Lowenstein: That's probably another podcast for us. But anyways, as I was, as I was. Leaving that job, you know, just over a year ago, I was considering starting my own fractional CFO business at that time. I had a few ideas. I even thought about acquiring 1 and I was. Exploring a partnership with someone and that person introduced me to D2C and that was a very faithful introduction that you know, set us down this path.

[00:07:31] Jeff Lowenstein: Right? So, I'm happy to go more into that. How did it all came together? D2C? But, anyways, that's all the background that led us to meeting. 

[00:07:44] Jon Blair: Yeah. And you know, I think it's important to share this for people to know when, when I met Jeff through a mutual friend, I had been running free to grow for a little over a year, maybe about a year and a half, not quite.

[00:07:57] Jon Blair: And it was very clear that there was, [00:08:00] there is a gap in the marketplace that, that we were you know, we were meeting a very important need within. And so, I was actually actively on the hunt for a partner, but, you know, have, have been an equity holder and on the executive team of several early stage startups and kind of learn the do's and don'ts of who to partner with and who not to partner with and what that checklist looks like of attributes that are needed.

[00:08:25] Jon Blair: And so at a very long list that I've. I kind of quite, quite frankly thought was probably unrealistic and I'd probably end up partner lists because of that. But when I met Jeff, we it was just very clear that he checked all those very important boxes and, and I honestly, I sat down with him and just said, Hey man, how about we join forces instead of you starting your own firm?

[00:08:48] Jon Blair: Because I think we could be. we could be quite the formidable team and most, most importantly, we can scale and we can reach more of these e commerce brand [00:09:00] founders faster if we join forces. And that was really the, the heart behind it all is like, how do I find another good human being who wants to build a business full of good human beings who want to try to help other good human beings in a very overwhelming situation, which is scaling an e com brand.

[00:09:17] Jon Blair: And so. Fast forward to a year later and, and we've got instead of the nine or 10 clients I was serving at that time, we've got, you know, getting close to, to two dozen and, and growing. And it's just been really, really awesome getting to this point. One thing I do want to actually ask, just so you can clarify for the audience before we dive into talking about Amazon, how many Amazon brands do you estimate you've touched?

[00:09:44] Jon Blair: in either the M& A process or the integration process when you're at Boosted? 

[00:09:50] Jeff Lowenstein: Well, it's a great question. And if you include brands that we negotiated with and we analyzed financials [00:10:00] but did not progress to the due diligence stage, well into the hundreds. So several hundred over a few years. And so you get a really good feel for how these businesses look.

[00:10:14] Jeff Lowenstein: On the financial side, after reviewing hundreds, literally hundreds of P and L's, you know, looking at financial trends and KPIs, looking at the balance sheet as well, right? So, there's a real crash course. And I threw all that right through all those touch points. I knew from my background being in strategic finance roles, and then also doing that, you know, analysis and due diligence at boosted commerce.

[00:10:40] Jeff Lowenstein: That the financial analysis that's needed for it for an e commerce brand is challenging in some ways because of the working capital, requirements because of the variability of margin when you're marketing efficiency can be [00:11:00] all over the map. And so I knew there was a need for this type of work. But I wasn't seeing it right.

[00:11:06] Jeff Lowenstein: We would see financial statements that, were sloppy, incorrect. And I, I felt pain. I felt that pain internally for entrepreneurs who had worked extremely hard that they had poured their blood, sweat and tears into their Business over many years, right? Invested their time, their, their family's capital, right?

[00:11:31] Jeff Lowenstein: And they may or may not have been able to pull out any cash over that time period. And when they come to sell it, right, that's probably the most money they'll make is, is upon exit. And it was, it was heartbreaking to see that actually what they thought they were, making in terms of profit was just incorrect in some cases.

[00:11:52] Jeff Lowenstein: And so that. That feeling always stuck with me that there needed to be a little more rigor introduced into the space [00:12:00] and some of that same work that I was doing at Boosted could be. Offered as a service and, and, you know, trying to help level up the financial discipline of e comm brands was, was the driving force behind why I wanted to originally start my own fractional CFO firm.

[00:12:18] Jeff Lowenstein: And when I met D2C, he had the exact same. deep feeling that it's stressful, it's hard, and we can help the brand owners with making decisions, but also feeling with also with feeling more confident about the financial situation of their business. So we were, we were extremely aligned on that, on that part, right.

[00:12:39] Jeff Lowenstein: I would say shockingly. So 

[00:12:42] Jon Blair: absolutely. Absolutely. And look, I'll say one more thing and then, and then I'll shut up and we'll talk, we'll talk Amazon strategy. But, Really our, our, our mission is to help fight back against the stress and overwhelm of scaling and econ brand. And it's [00:13:00] because we believe every, every business owner deserves to experience the freedom and growth of being an entrepreneur and it sounds cheesy, but that's where the name free to grow comes from.

[00:13:11] Jon Blair: We believe that when we do our job well as bookkeepers and fractional CFOs, we help clients get a little bit closer to experience the freedom and growth that draws every entrepreneur into wanting to own their own business instead of work from, for someone else. So, So with all that being said, let's chat Amazon strategy.

[00:13:32] Jon Blair: So there's a lot to unpack here. I want to start with some basics, but some basics that like, if you don't know the acronyms, if you haven't been in a, if you haven't been in the Amazon space before, you may not know some of these things. You may not even know that there are different ways to sell on Amazon and fulfill on Amazon and things of that nature.

[00:13:49] Jon Blair: So I want to start with bare bones basics. First one, vendor central versus seller central. What's the difference between Amazon Vendor Central and Amazon Seller [00:14:00] Central? 

[00:14:01] Jeff Lowenstein: And they sound similar, right? Vendor Central, Seller Central. It's quite confusing. So there's a difference. There's a big difference.

[00:14:12] Jeff Lowenstein: When you think about Amazon, people think of I'm buying something from Amazon as a consumer and that's right. You are logging into amazon. com and. ordering from Amazon, it shows up in an Amazon branded box, right? You return it to Amazon if you need to. However, there's multiple different ways that that product can be sold to you going on behind the scenes.

[00:14:41] Jeff Lowenstein: And there's multiple ways that a brand can interact with Amazon's Platform and the business model can be quite different based on what they choose to do. And so, so vendor central is just like traditional wholesale. You could think of it [00:15:00] like what used to happen at big or what happens today in big box stores, right?

[00:15:05] Jeff Lowenstein: This was, you know, the only way that brands made money in the past, right? It was either sold into a big retailer. Yeah, basically you would sell it to a big retailer and that's the same thing here, right? The brand sells at a discount to Amazon, Amazon owns the product, and sells it on to you, and Amazon itself has to mark up the price to make their margin.

[00:15:30] Jeff Lowenstein: If the product doesn't sell, that's Amazon's problem for the most part, right? And they can play with the price, or they can do other things to try to move the product, but They own the inventory, which is really key. So there's a negotiated price between Amazon and the brand. That's a wholesale price.

[00:15:54] Jeff Lowenstein: And of course, Amazon's a big player and they can negotiate very hard. And [00:16:00] so. They have quite a lot of power in the marketplace, so that can be challenging for lots of reasons for for brands But the upside right is that you know if Amazon does a good job selling it they can be a steady customer and and And they'll buy from you in bulk.

[00:16:22] Jeff Lowenstein: That's Vendor Central. Seller Central is completely different. Seller Central, and bear with me, because it's confusing to think about if you haven't encountered a marketplace before, Seller Central is actually a third party marketplace within Amazon, where a brand can list their product. Input their own listing images, input their own copy for the descriptions, all that stuff, and sell it to you as the consumer through Amazon's platform.

[00:16:56] Jeff Lowenstein: The key difference is that the inventory [00:17:00] is still owned by the brand. Amazon charges the brand a fee to hold that inventory in their warehouse, and then another fee to sell, send it on to you, the consumer, within two weeks. You know, 24, 48 hours for it to participate in in the prime program. And so it's quite different because, well, you can think about it like this, right?

[00:17:25] Jeff Lowenstein: Who actually owns the inventory at any point in time? That's the key difference. But the business model is quite different as well, because you as the seller, you as the brand and seller central, you get to control the pricing, the copy, the images, how much you spend in ads, how much inventory you have in the warehouse.

[00:17:44] Jeff Lowenstein: Or how much you don't have in the warehouse. All those things are in your control. However, Amazon will charge you fees for services all along the way at every step of the chain. Right? So it is quite different. It was several years ago that over 50 [00:18:00] percent of goods on Amazon were, were sold through the third party marketplace through seller central.

[00:18:09] Jeff Lowenstein: In 2023, I just checked this before we got on, D2C, somewhere around 68%. Of goods sold on amazon. com are third party. So interesting for those of you at home, you're thinking, what do you mean? I buy everything from Amazon, right? Well, actually probably most of this stuff you're buying is sold through this third party marketplace through seller central.

[00:18:35] Jon Blair: So a couple of things I want to riff on there. One, I, this is just spec or this is hearsay. I heard back when Guardian bikes and we're selling on Amazon, I heard that seller central is actually more profitable for Amazon. Because they don't have to take the inventory risk and, and and you know, they don't, they are not as not being not the seller.

[00:18:57] Jon Blair: They have actually lower costs and [00:19:00] actually just charging the fees that they charge on seller central. They actually make a much higher margin. Don't know if that's true or not, but I, it, I, it did, it. At least from my experience and discussions I had with people in the earlier days of econ, like seven, eight years ago, it used to be easier to get on vendor central and they're making it a lot harder.

[00:19:19] Jon Blair: I've heard to be accepted into vendor central and And there's also this, you know, again, I don't know if this is true or not, but like really Amazon is looking for a way to, you know, if your product crushes it, they want to just white label their own version of it and sell it if they can. And so interesting story.

[00:19:39] Jon Blair: This is actually really, really interesting. Guardian bikes. We were selling on Amazon about Seven, seven, eight years ago on started on Vendor Central because Mark Cuban was an investor of ours and he got us connected with the vice president of our product category. So we got a really sweet deal on Vendor Central getting containers purchased direct from China.

[00:19:59] Jon Blair: You know, [00:20:00] so getting like half a million dollar POs. There was a time when it, when we had this weird kind of like lull in communication and didn't, didn't hear anything from them. Fast forward to like just a couple of years ago, one of our investors was skiing out in Idaho and he was sitting down at a bar talking to a guy who was like, Oh, I know guardian.

[00:20:20] Jon Blair: I was the vendor manager. They handled their account. I won't say his name to protect him, but he told, he told our investor. He said, Hey, listen, for, for like a good three months, we were pouring over your patents, trying to figure out if there was any way for us to introduce the same thing and get around the technology and not have to purchase from you guys anymore.

[00:20:42] Jon Blair: But we could not figure it out. Your patents were like, Locked up and so we kept purchasing from you guys. But so like that, I'm just pointing out that there is a risk. Amazon really does sometimes take over a product category after someone, after a brand crushes [00:21:00] it on there. Now I'm not saying that that should scare you from Amazon.

[00:21:03] Jon Blair: It's just to know that like you are selling on someone else's platform. You're not selling on your platform, right? So one of the drawbacks is. You don't get to keep all the data. Amazon has all the data on the customer. They know who's buying. They, they also, you know, kind of, you know, they're always looking at, at ways to introduce new products themselves as a retailer.

[00:21:23] Jon Blair: And so that, that's one thing to consider. Another thing is, and we can get to this more in a, in a few, but like, or actually maybe we just drill into this here. On the Seller Central side, Jeff mentioned The fees for fulfillment and storage, that's unique to a fulfillment method called FBA, but there is also something called FBM.

[00:21:45] Jon Blair: So I don't know, Jeff, maybe you want to like drill into, if you're selling on seller central, what are the different ways that you can fulfill product? 

[00:21:53] Jeff Lowenstein: For sure. And I just want to respond to something that you said there that that's really interesting about. [00:22:00] Guardian and Amazon trying to find a way to replicate your product.

[00:22:07] Jeff Lowenstein: It totally happens and it totally is a problem. Amazon will launch a private label version of a successful product and steal market share. And there's even unfair advertising practices that they do where I've seen. Certain placements that they'll, they'll put their own products in. I've seen listings from Amazon that don't comply with the terms of service, meaning your, your first image has to be a plain photo of product and white background, and that's it.

[00:22:40] Jeff Lowenstein: There can be nothing else in there and they don't know it. You know, I've seen the Amazon products that violate that rule. Right. So it's a problem that they don't always play by their, their own rules. However, I'm, I'm not convinced it's the problem that people think that it is. It gets a lot of mention in the press and a lot of [00:23:00] media outlets pick up on it because it's a very obvious, unfair example.

[00:23:06] Jeff Lowenstein: But I think that the number of Amazon private label products that are actually that successful is, is, is very small. I'm It's, it was, it was certainly around, it's certainly less than like two or 3 percent of GMV. I remember reading it in an article and that I don't know what the number is exactly today, but it was pretty small.

[00:23:28] Jeff Lowenstein: And so while it's something to watch out for, I would, I would actually say it's not a great reason to not launch on Amazon. And I would, I would for sure from being too, too frightened, like, like you mentioned, D2C. So. It's an interesting one. He gets a lot more airtime than, than the dollar impact. 

[00:23:51] Jon Blair: For sure.

[00:23:51] Jon Blair: I mean, it's also like, come on, there's the classic, like, Oh, the big guys, like killing all the little guys in the marketplace with unfair practices, news [00:24:00] outlets, love to talk about that kind of stuff. Right. But like, the other thing is it comes back to your, your strategy, right? Like, what is your strategy for building a brand?

[00:24:09] Jon Blair: Like the word brand, we don't say, that we work with D2C product companies. Like, we work with brands. You have a brand name that is unique to what you sell. You may have a product category that there's competition from other brands. But when you're selling on Amazon, what's the difference between, I mean, there's a lot of differences, but generally speaking, what's the difference between an AmazonBasics, which, like, yeah, I've got an AmazonBasics mouse right here, so I'm part of the problem.

[00:24:39] Jon Blair: And your branded product, right, is that you're building a brand that stands for something above and beyond just the product itself, right? And so like, if you decide that there's a strategy within growing your, there's a brand growth strategy, where Amazon is a good fit for one reason or another. [00:25:00] Most certainly don't let the whole like private label thing freak you out because you're building a brand that hopefully stands for something that would stand up against a private label product should, should Amazon try to copy what you're doing anyways, right?

[00:25:16] Jeff Lowenstein: Well, I think you nailed it on the head, right? If you're scared to launch on Amazon because your product is going to show up Alongside competing products in the category. Maybe that's not an Amazon problem. Maybe that's Your product problem that you're not feeling confident That there's a compelling reason customers should choose your product and maybe pay a premium for that products as well.

[00:25:41] Jeff Lowenstein: Right. And it comes down to innovation, you know, differentiation, right. And then of course, marketing is, is important too. In some ways, Amazon is actually the most egalitarian platform. 

[00:25:58] Jon Blair: If you totally 

[00:25:58] Jeff Lowenstein: compare it to [00:26:00] direct to consumer, right. If you happen to have a better hook. In your Instagram ad, right?

[00:26:05] Jeff Lowenstein: You might outcompete. You know, the next guy in your, in your category, but that's not going to be very long lived if your product quality is not there and there's not a reason for people to keep coming back on Amazon, people can see your reviews, ratings, photos, real customer photos right there on the platform, right?

[00:26:27] Jeff Lowenstein: And that, feeds back into the algorithm, and so better ranked, better reviewed and better, you know, better received products should be ranking higher. And of course, people would argue, well, they say, well, it's pay to play, you know, that, that algorithm can be manipulated, and of course it can, and people do that, and that's, you know, good business as well, right?

[00:26:51] Jeff Lowenstein: It's a good business practice, but it is actually You know, a place where, where products can stand on their merits much more than, [00:27:00] you know, the vast, like ocean of direct consumer, where really you're competing for attention on who can, who can design the catchiest to serve someone, right. And that's, that's how you pull someone in.

[00:27:13] Jeff Lowenstein: So, I would, I, yeah, I would say like people need to be confident in their, in their actual product that it can stand against the competition. And another just thing I also want to mention. In terms of business model, right, is that depending on your strategy, it's not, it's not either, or it should be, I think it should be very much a both and, and I think they serve different, different purposes at different times in the life cycle of a brand.

[00:27:44] Jeff Lowenstein: Amazon can be better for near term cash flow and near term sales. And I think direct to consumer can be better for brand, building brand equity, building a relationship with the customer, building that LTV. You know, it should happen on your [00:28:00] website, which where you can control the messaging and build a relationship with the customer.

[00:28:04] Jeff Lowenstein: And so I think both are important, and I think people get some get sometimes lost in the, like, competing nature of the two. But when you get them both working synergistically, right, that's when you can really succeed. 

[00:28:18] Jon Blair: Yeah, so actually we'll come back to the FBA versus FBM in a second because I actually this this segues nicely into something else I want to talk to talk about which is like it's it's the strategy of using Amazon It's not just some sales channel that exists to like bring in more sales volume There's a strategy to why you may want to leverage Amazon and going back to this vendor central versus seller central I'm gonna tell a little story so like At Guardian, we were D2C first when it came to our e commerce business.

[00:28:48] Jon Blair: Brian, Kyle, the other guys on the founding team, the original founders, they went on Shark Tank. We got an investment from Mark Cuban and that was when the company could afford me to start full time. [00:29:00] And Mark was like, Hey, this needs to be on Amazon. Let me connect you with someone over there. So Mark connected us.

[00:29:05] Jon Blair: We got lucky. This doesn't usually happen. We got connected with the VP of our product category. And at first they wanted to do what are called domestic shipments, meaning they would just send us weekly shipments, small shipments that we'd send from our 3PL. to various fulfillment centers for Amazon.

[00:29:22] Jon Blair: The problem with that is that we had to double ship everything, ship it to our 3PL and then ship it from our 3PL to all these distribution centers for Amazon. So the margin really sucked. So we pushed back and I think we had some clout from Mark that really helped. And we said, you guys need to buy direct import called your DI for short, direct from China, containers at a time.

[00:29:44] Jon Blair: So the risk for Amazon is they had to place big POs. We are getting PO six figure POs from them. But the advantage was they picked it up FOB China port, and so they use their shipping rates and their shipping rates. Amazon has incredible shipping rates, right? And [00:30:00] so that took a bunch of costs out of the supply chain we both got to share in that margin improvement, right?

[00:30:04] Jon Blair: But coming back to the strategy, We were very concerned about not having the data, the customer data, because that was a big part of being a D2C brand, was having a direct customer relationship, right? But at that time, getting six figure POs that we could invoice as soon as the goods left China, which is only like three days after we had to pay for them, we could go take that receivable, and because Amazon is a great paying customer, We could go factor that receivable and we could borrow 85 percent of that receivable and get cash today to keep scaling the business.

[00:30:38] Jon Blair: So we decided to do vendor central for about a year because of like Jeff was, was referring to, like we were able to get this quick, steady flow of big orders and orders that we could turn into cash quickly by financing those receivables. We did it for about a year. We ran into a lot of issues with like, Amazon's algorithm changing the pricing and the pricing [00:31:00] dropping super low relative to our site and We just all these issues with the customer experience and pricing and we finally decided Hey, we're going to go seller central But strategically we couldn't do it until we could afford to right so we actually had to do a little bit of an equity race We went back to our investors.

[00:31:17] Jon Blair: We said, Hey, this equity raises to help us transition from vendor central to seller central. And we need some capital because the cash cycle is different. We have to buy the inventory ahead of time. There's no receivables, the factor. And so we moved to seller central. And all was good, but we had to raise capital to do so.

[00:31:33] Jon Blair: Right. And so the point I'm making going back to Jeff's point is that like, there are strategic reasons of how to use Amazon and, and, and when, when to use it and to what extent. And we even eventually on seller central, eventually started taking some of our products off and only offering our lower price point entry level bikes on Amazon and not our full [00:32:00] flagship product line and all of our accessories.

[00:32:02] Jon Blair: And the strategy there was, Hey, we're going to get new eyeballs on the Amazon platform on the brand that we wouldn't get through our DTC marketing efforts. And so we'll just have these products visible and available. And we'll execute some sales, but hopefully we got some brand loyalty of people coming back to the site to purchase later on.

[00:32:21] Jon Blair: So I'm telling this story to all to say that like there are strategic, there are strategic reasons to consider expanding into Amazon. It's not just, it's not just, Oh, let's just open up another sales channel. It's why, how does this fit into the strategy? 

[00:32:38] Jeff Lowenstein: Don, what I'm curious, what kind of terms were you getting from Amazon when they would.

[00:32:43] Jeff Lowenstein: Cut those POs. How long would they take to pay you? 

[00:32:47] Jon Blair: So we had net 90 days with them and they do a very typical thing that I feel like most retailers do which is like They'll, they'll give you shorter payment terms for a percentage [00:33:00] discount, right, on the invoice. And you can take longer terms for no percentage discount.

[00:33:07] Jon Blair: And we actually ended up taking the longest terms they had available to us with no discount. And it's because if you annualize the discount you don't realize this because it's usually floated as like 1 to 2 percent. But if, in this case, the, the discount they floated was 2 percent for 30 days, 2 percent for 30 days is 24 percent annualized.

[00:33:29] Jon Blair: I could factor that receivable for 15 percent annualized, right? So, we actually took the longer payment terms with no discount and factored that receivable to accelerate the cash inflow and it was a lower annualized cost of capital than giving a, giving a discount. So, it was 90 days is what we landed on, but how we floated the cashflow to buy the inventory was we negotiated with our, our factory.

[00:33:56] Jon Blair: Cause we had to pay everything before the goods left the facility. And we said, Hey, for [00:34:00] Amazon orders only, can you give us net seven days? Cause it takes about three to five for it to transfer title at the port and then invoice Amazon. And so what that allowed us to do is invoice them, factor the receivable, pay the factory, and that's how we're able to float 

[00:34:15] Jeff Lowenstein: that.

[00:34:16] Jeff Lowenstein: That all makes sense, D2C. Thanks for sharing, and certainly we could spend a whole hour on cash conversion cycle and how to calculate it, and what you did there was obviously pretty impactful for the cash cycle of Guardian bikes. It's interesting, right? Because vendor central, yeah, the benefit is you get those big POs and quickly and they can be great for cash flow, but you're also at the whim of Buyer, right?

[00:34:42] Jeff Lowenstein: And if those stop coming, all of a sudden your whole business can, can take a left turn really quickly. And so that trade off in, it's really control is what you're talking about, right? Amazon can set their price low because they own the inventory if they want on a certain day, [00:35:00] but that, you know, it doesn't work for your website.

[00:35:02] Jeff Lowenstein: However, if you're on Seller Central, you're, you're selling it yourself. You're in control of all those aspects of, you know, the customer experience and your business, right? So that's a key difference. I think you were asking about FBA versus FBM. Should we go back to 

[00:35:21] Jon Blair: what I wanted to ask you about there is like, okay.

[00:35:24] Jon Blair: And I know you probably get this all the time too. Brands ask me a lot, like when they're looking to expand from D2C and Amazon, like, should I do FBA or should I do FBM? And, and why does one matter over the other? Like, just explain to the audience the difference between the two and what the advantages and drawbacks are of using each of those fulfillment methods.

[00:35:47] Jeff Lowenstein: So specifically didn't mention this before, so it didn't get too confusing, but within the seller central version of the world, there's, there's two main types [00:36:00] of ways to sell on Amazon. One is called FBA, which is what I was mentioning before. FBA stands for fulfillment by Amazon. You set you as a brand, send your product into Amazon's Fulfillment centers, they store it there.

[00:36:18] Jeff Lowenstein: They charge you a fee for that many different types of fees, by the way, which again is a topic for another podcast. And then once, you know, a product is purchased by a customer, they'll send it on and deliver it to that person's doorstep, but the key thing is. With Prime, right? Because they have the inventory in their warehouse, they can plug it into their fulfillment network and deliver it with the Prime shipping promise of 48 hours in most cases, and they're trying to get it down under 24 hours, is their big push currently.

[00:36:56] Jeff Lowenstein: They're making quite a lot of progress. So that's a [00:37:00] huge advantage because, you know, I do it all the time, right? I think of something, it's changed the way that I shops and the way that I think about acquiring products in my life, is this program of Amazon prime, right? I think of something boom within 10 seconds.

[00:37:17] Jeff Lowenstein: I click a couple of buttons by now. I don't have to think about it. It's on my doorstep the next day. 

[00:37:25] Jon Blair: So that's one thing I want to say about that is that like, for you as a DTC brand, to be able to ship, to be able to get product to your customers within 24 to 48 hours, you have to have your product in many more warehouses than you think.

[00:37:39] Jon Blair: I learned this at Guardian. You can't just have two to three fulfillment centers and reach everyone in the U S in 24 to 48 hours. And so although Amazon takes some of these fees from you, I, in my experience, they can get your product to customers in the prime, like, time frame much cheaper than you can in the early days.

[00:37:59] Jon Blair: Later on down the [00:38:00] line, when you're at scale, depends on your product category, but when you reach some sort of critical mass or inflection point, you're You can begin to get product to customers in two days yourself because you have enough inventory to expand into all the fulfillment center nodes that are needed.

[00:38:14] Jon Blair: But this is one advantage to going seller central in the early days is you can, you can really benefit from their economies of scale and their fulfillment network and reach people faster. So I just, I just something I wanted to note. 

[00:38:27] Jeff Lowenstein: That's it. I mean, when you think about the retail side of Amazon. not AWS, right?

[00:38:32] Jeff Lowenstein: That's probably their biggest advantage and moat as a business is this amazing, amazing fulfillment network. And it's been quite controversial, but just in the last They started charging for that distribution of your product across the different fulfillment centers across the country. It used to be that you could just send it into the closest one to your warehouse or to your manufacturer.

[00:38:59] Jeff Lowenstein: And they [00:39:00] would do that placement on your behalf to get it closer to the different you know, zones that they need to be in to deliver on the prime promise. But anyway, so that's an amazing benefit of Amazon. And that's why they have so many eyeballs and customers, right? Is because of that prime promise.

[00:39:20] Jeff Lowenstein: So anyways, that's one version of selling on seller central. That's, that's called FBA. The other option is, well, there's other, there's, there's two more options, but the other main option I'll mention is FBM, which is fulfilled by merchants. And that just means that you've listed your product in Amazon.

[00:39:40] Jeff Lowenstein: You still control the pricing, the image and the copy on on the listing page, however, after the customer checks out, you as the merchant use, you ship that on to the customer. And so like D2C was saying, unless you're paying for, you know, overnight or rush shipping, you're [00:40:00] probably not going to get it to the customer.

[00:40:02] Jeff Lowenstein: And certainly not going to get it to them within two days, just operationally. And certainly not at any reasonable cost to you. On your own. And so, but you'll notice, right, when you buy from a website, you typically don't get it in that same 1 to 2 days. So it's, you know, leveraging the merchant shipping network and whatever, whatever operations they're using for the direct to consumer side.

[00:40:26] Jeff Lowenstein: They're typically using to fulfill the Amazon order in this case as well. And FBM can be great, especially if you, if you ship heavy products, for example, that may not make sense. With with FBA or, made to order products can work for, there's, there's certain categories that it makes sense for. It also makes sense when you're first starting out, when you're first getting launched on Amazon.

[00:40:54] Jeff Lowenstein: A lot of people like to do this to just get the wheels turning. Figuring out how does this [00:41:00] whole Amazon thing work and, you know, you may not have the operations set up yet to actually store product in the Amazon warehouse. And so it can be a good bridge to getting you started on Amazon. But the key drawback in FBM is that you probably will not have the prime badge on your listing and you probably will not be able to, you know, sell it through the prime program.

[00:41:25] Jeff Lowenstein: And that means that customers are going to see that and. They're just not going to buy your product at the same rate. And that shows up in your conversion rate is often much, much lower on an FBM listing than it is on an FBA listing. So, so hopefully that makes sense the way I explained it. I know it can be confusing.

[00:41:44] Jeff Lowenstein: And one other thing I would add as well, it's not to confuse, confuse people further is that FBM is often used as a backup for FBA as well. Sometimes you run out of stock or. Maybe [00:42:00] something expires or goes bad in the Amazon warehouse and as a backup, you can, you can fulfill from your own warehouse, right?

[00:42:07] Jeff Lowenstein: So that's another way that people utilize the FBM program 

[00:42:11] Jon Blair: that you bring that actually reminds me of another important distinction between the two operationally. And using FBM as a backup. There's a processing time for product to become available on FBA, right? So one, one disadvantage is that you've got to ship the goods from your manufacturer, right?

[00:42:29] Jon Blair: And maybe you ship them to your 3PL and then you ship them to FBA. That that whole like lead time is long, right? Because normally d2c it gets into your 3pl. They check it in. It's a live on shopify right away You then have to ship it to amazon and it depends on the time of year peak seasons right before the holidays You better get those shipments in early because if you don't they might not get checked in in time for like black friday Or like the holiday rush they're a warehouse Yeah, just like everyone else's warehouse.

[00:42:58] Jon Blair: Like if your 3PL has [00:43:00] delays during certain times of year, Amazon likely going to have delays at FBA during that time of year. And it's even harder to deal with because at least at a 3PL, you can call up your account manager and say, yo. what's going on with that container. It's hard to get ahold of anyone at Amazon and track your, your shipments.

[00:43:16] Jon Blair: You literally, I mean, you literally are sitting there checking seller central every day to see if your product got checked in when you have those issues with that longer lead time to actually get stuff checked in and available on FBA because it's got to go through the whole DC, like the whole distribution process and receiving process at Amazon.

[00:43:34] Jon Blair: You can have FBM on where you're selling product and just drawing and off your three PLS inventory. Like Jeff said, you're going to probably have lower sell through and lower conversion because you won't have the prime badge, but you can still have your listing live, right? And like, the thing is, those listings work off momentum.

[00:43:51] Jon Blair: And so you're, you're better off, you're better off to go from FBA to FBM and have no prime badge and keep some momentum. Then you are to go from [00:44:00] FBA to the listing being inactive because you have no product in FBA. And so like it is a good, it is definitely a good backup option. Every brand that I work with who sells on Amazon has to switch to FBM at some point.

[00:44:12] Jon Blair: 'cause it is very hard to keep FBA stocked adequately, but not overstocked. There's an art to it and it's very challenging. And so just something, just something to point out there. I think the other thing I wanted to mention too about Seller Central that I thought of as you were talking. It's to just be, make sure you understand cause I, we learned this the hard way at guardian and Shopify, you're getting payouts every single day from payments, right?

[00:44:39] Jon Blair: On seller central, you get them every 14 days. And so there is like actually a little bit of like kind of accounts receivable, so to speak, where like whatever you're selling on Amazon, that your merchant account balance is building up over two weeks and then it gets paid. over to your bank account.

[00:44:55] Jon Blair: Whereas like, there's kind of like this daily cash coming in when you have a Shopify [00:45:00] store. And so that's something you've got to be ready for. And also if you're a newer seller with no history, be ready for them to hold a reserve at the end of the statement period. We're like, you're like, Hey, there's, there's a hundred grand that I should be getting, but there's like, whatever a 25, 000 reserve they're reserving for returns and refunds and other things.

[00:45:20] Jon Blair: because you're a newer seller and they don't know what that return rate is going to look like. You can even be a seasoned seller and your return trends start going in a bad direction and they'll hold a reserve. And it's so that there's enough cash in that account to cover refunds and other chargebacks.

[00:45:37] Jon Blair: And so just, just know at the beginning when you're getting into that, getting into Amazon, you're going to get your cash every two weeks and expect some reserve holds of some of your cash. For at least the first little bit while Amazon gets to know you and you get, you got to prepare for that cash cycle difference because it is different.

[00:45:55] Jeff Lowenstein: It is different. There's some, there's [00:46:00] there's a new feature where you can, you can request a payout in some cases, which, which helps a bit to shorten that, that two week cycle. And the reserve is interesting. I was going to mention it and, and you, You already did the reserve is interesting. It got very complicated, maybe not complicated, but contentious.

[00:46:18] Jeff Lowenstein: Think about when you're doing an M and a deal, you're acquiring the business and the question is, there's this reserve amount that's sitting there week after week, month after month that never gets paid out. It's just a balance that Amazon holds. Well, if you're buying that business, do you want, you know, do you want to pay for something that you're never going to receive and if you're selling that business?

[00:46:41] Jeff Lowenstein: Right. That is money that you earned, but it's just never going to come to you. You feel like it should come at some point, right? So you want the buyer to compensate you for that because it is. It is earned money so it, it definitely got contentious at some points to be honest, right? There's a lot of [00:47:00] debates over it.

[00:47:00] Jeff Lowenstein: Is that something that, is it essentially should be treated as cash on the balance sheet or should it be treated as a receivable or not that reserve amount? So that was something that was always tricky and, and it And an acquisition that we had to deal with 

[00:47:18] Jon Blair: for sure. I could actually, I've never thought about that cause I've never been in that scenario, but that definitely, cause you don't know for sure.

[00:47:25] Jon Blair: I mean, more often than not, you end up getting the money, but you don't know for sure. What's going to happen to that, to that reserve. It's really kind of like, okay, let's see what happens here. You know, well you 

[00:47:34] Jeff Lowenstein: get the money, but then the next payout, you know, the reserve might be higher, right? So for sure, kind of lingering there and it fluctuates.

[00:47:43] Jeff Lowenstein: So it's, it's hard to predict, but, yeah, anyways, it's it's only two weeks, right, which is. Still not as bad, as the net 90 we were talking about earlier if you're on Vendor Central, right? So that's something to keep in mind. [00:48:00] 

[00:48:00] Jon Blair: Another, just another little, like, tactic that Amazon uses to generate their beautiful negative cash cycle is not just their payment terms with their vendors and with their Vendor Central.

[00:48:11] Jon Blair: Or their vendor central vendors and then selling, you know, direct to consumer, but they also have they get to hold on to seller central, sellers money for 14 days. It's, quite the crazy thing that, and then they're taking everyone's ad dollars on top of that. It's quite the business model they have over there.

[00:48:33] Jon Blair: But look, what I want everyone to take away from this is that there's just again, there are strategic ways to use Amazon, okay? And it's all about like, we wanted to break down some of the basics of vendor central, seller central tell some stories. So that you can get a sense of like, what are some of the strategic levers that you could potentially pull and this does all ladder up to you need to be able to answer the question.

[00:48:55] Jon Blair: Like, why do I want to potentially expand to Amazon? It's it's not just a [00:49:00] mindless. Turn it on, right? One other story I'll tell is like I have a brand that that is a client of ours that scaled up to you know, very healthy eight figures very, very fast on their D2C site and their marketing efficiency ratio started coming down a little bit.

[00:49:16] Jon Blair: They were still profitable but they were spending heavily on meta and so they had, I mean, like they're spending millions of dollars a month on meta driving a lot of top of funnel awareness. And so they went ahead and just turn on Amazon FBM, didn't even go FBA, just FBM to see how that would enhance the overall blended M.

[00:49:33] Jon Blair: E. R. Of the business. And as soon as they turned it on, Rose significantly. And so what that told us in part was, Hey, there are people who are not converting on the Shopify side of the funnel who went to, who went to Amazon and bought, right? Cause when we turned it off. MER dropped again. We didn't change anything else anywhere else, right?

[00:49:55] Jon Blair: And so they use it as kind of like a just another [00:50:00] point of sale point of purchase Like place for someone to check out, right? And the thing was there just are some people who prefer to buy on amazon because they feel safe buying on amazon, right? And then as you start building more and more reviews if they're positive you know, there's more of this kind of like a social proof, honestly, on Amazon.

[00:50:22] Jon Blair: We're like, okay, like I've never heard of this brand before. I saw this Facebook ad and maybe it was a little bit cheesy, right? And like, does this thing really work? Does it not work? And you go to Amazon and you see this social proof there. Some people are willing to convert there again, even if it's not on prime.

[00:50:39] Jon Blair: And so, like, that's just another story of, like, how to consider using Amazon strategically as you're scaling your brand. 

[00:50:45] Jeff Lowenstein: Totally. I think a lot of brands leave money on the table by not launching on Amazon earlier in their history. And if things are going well direct to consumer, fine, right? Don't overcomplicate things.

[00:50:58] Jeff Lowenstein: But I, I, I really do think it [00:51:00] should be part of the overall strategy from an early phase. And I think you're leaving a lot of sales and efficient, efficient sales on the table, by not selling on Amazon. And when you say MER was higher for that, that brand you mentioned overall, that means that, you know, on, on a weighted average basis, it was higher.

[00:51:23] Jeff Lowenstein: So Amazon's. MBR, if you just compare that against the direct to consumer, clearly it was much higher, right? 

[00:51:29] Jon Blair: Yep. Yep. So 

[00:51:30] Jeff Lowenstein: you're certainly capturing some demand that's already there. And, you know, I worked with a brand that I think they thought of themselves as direct to consumer when they started out, but they launched fairly early on Amazon in their history, and Amazon far surpasses that.

[00:51:51] Jeff Lowenstein: Their website in terms of sales now. And, you know, they're thankful that they, that they started early with Amazon because otherwise they would not nearly [00:52:00] have had the same success as they have. So, yeah, I think it should be part of an overall strategy. And if you're not thinking about it I think you 

[00:52:09] Jon Blair: should.

[00:52:11] Jon Blair: Absolutely. Look, there's, there's so much more we could talk about here. I mean, we're going to have Jeff on more episodes regardless, but we might have to honestly have an Amazon strategy part two, maybe even a part three, because there's a bunch of stuff we couldn't even get to here, but this was all like super, super helpful, super relevant things that you need to be thinking about.

[00:52:33] Jon Blair: As a DTC brand operator. But before we land the plane here always like to finish out with, Asking a little bit about our guest's personal life. So, a lot has changed in your personal life in recent months with becoming a dad. But would just love to hear a little bit from you about something that you're loving right now.

[00:52:57] Jon Blair: About being a dad and then [00:53:00] on kind of like the more personal development or even business side. What's something you're reading or listening to or something that's just like really hitting you right now? 

[00:53:08] Jeff Lowenstein: Yeah, for sure. It's been, it's been a big transition. My son is about four months old now and, D2C has three kids.

[00:53:18] Jeff Lowenstein: So he's shown me the way on a lot of things. But, I mean, what I'm loving is, is he just. started smiling back at us. So that's been amazing to see. And I'm trying to figure out all the little, little tricks to get him to smile, all the time, which is probably annoying him, but that's too bad too bad for him.

[00:53:43] Jeff Lowenstein: And, something, something I'm reading or listening to. I mean, you know, not much time for reading these days or even listening with, with, with him and everything. But I've. I've enjoyed reading [00:54:00] Outlive, which is Peter Attia's book on how to live a, a longer and healthier life and, and extend the years in which you're, you know, able bodied and, and feeling good in your own, in your own body.

[00:54:13] Jeff Lowenstein: So that's, that's been interesting. And, even though I'm not always perfect at it, you know, I do try to take care of my, my physical health as we go. So, so that's been important. And then you can find more info by the way, I'm free to grow. Or myself freetogrowcfo. com. My email is jeff, J E F F, at freetogrowcfo.

[00:54:37] Jeff Lowenstein: com. And my LinkedIn is, is alive and well, and my DMs are open there, too. So, feel free to message there if you're interested in chatting about anything. 

[00:54:49] Jon Blair: Awesome, awesome. Well, what an awesome conversation today. It's been a long time coming, getting Jeff on the show. This'll be the first of many. You know, if you want more helpful tips on [00:55:00] scaling a DTC brand, consider following me, D2C Blair on LinkedIn.

[00:55:03] Jon Blair: And like Jeff mentioned, you can find him on LinkedIn at Jeff Lowenstein. And look, if you're interested in learning more about how Frida grows e commerce accountants, And fractional CFOs can help scale your brand alongside healthy profit cash flow and confidence Like jeff mentioned check us out at free to grow cfo.

[00:55:21] Jon Blair: com Hope today's conversation was helpful proves to be fruitful for your business and until next time scale on. 

[00:55:30] Jeff Lowenstein: Thanks

DTC to Retail: Strategies for Scaling Profitably

Episode Summary

In this episode of the Free to Grow CFO podcast, host Jon Blair, founder of Free to Grow CFO, engages in a deep dive into the world of retail expansion for direct-to-consumer (DTC) brands with a profit-focused mindset alongside guest Renee Hartmann, co-founder of CLA. Renee shares her entrepreneurial and consulting journey, offering insight into market expansion, particularly into China, and the significance of understanding consumer behavior and demand planning in retail. During their conversation, Jon and Renee explore the nuances of navigating the retail sector, offering insights into the challenges and strategies for DTC brands looking to grow beyond their online presence. From understanding the different aspects of retail contracts and payment terms to devising effective marketing strategies and the role of events, this episode provides a comprehensive overview of what brands need to consider for successful retail integration. It’s packed with actionable advice for brand founders considering an omni-channel approach and emphasizes the significance of maintaining a profit-focused mindset throughout the scaling process.

Meet Renee Hartmann

Renee is the Co-Author of best-selling book Next Generation Retail: How to Use Technology to Innovate for the Future which takes a deep dive into the technologies impacting retail and e-commerce today, including AI, retail media, social commerce, Web3, sustainability, supply chain, loyalty and more. She was named one of the Top 100 Retail Experts in the world by ReThink Retail in 2024. 

Renee is based in Portugal and is an Advisor to start-ups in the consumer, retail & technology sectors. She also conducts executive education and training for brands and retailers seeking to infuse a culture of innovation throughout the organization. 

Renee has worked as a brand owner, retail operator, and branding and market entry strategist for the last 25 years. Renee was previously COO of the Shanghai-based streetwear brand, Eno, which was named one of the ten Most Innovative Companies by Fast Company. She was a Director at Ogilvy & Mather, and was an equity research associate at Putnam Investments covering the consumer and retail sector. 

Renee holds a BBA from Emory University’s Goizueta School of Business, and an MBA from Duke University’s Fuqua School of Business.  She holds the Chartered Financial Analyst designation, and was named one of CNN’s “Top 20 People to Watch in Shanghai” in 2010. Renee serves on the Asia Pacific Board of Advisors for Duke University, is a board member of the Dual Immersion Foundation and a Member of the Virtual Advisory Board. 

See more about Renee at www.renee-hartmann.com. 

Episode Links

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

Renee Hartmann - www.renee-hartmann.com.

Free to Grow CFO - www/freetogrowcfo.com

Episode Transcript

00:00 Introduction to the Free to Grow CFO Podcast

00:28 The Importance of Retail for DTC Brands

02:21 Renee Hartman's Entrepreneurial Journey and Retail Insights

05:33 Expanding into the China Retail Market: Opportunities and Challenges

07:46 Strategies for DTC Brands Considering Retail Expansion

11:01 Navigating Retail Expansion: Inventory and Demand Planning

25:01 Leveraging Retail for Brand Growth and the Challenges of Omni-Channel Pricing

29:05 Navigating the Challenges of Retail Expansion

29:59 The Complexities of Direct-to-Consumer vs. Retail Dynamics

31:10 Setting Strategic Goals for Business Growth

31:50 Exploring the Potential and Pitfalls of Scaling Beyond DTC

38:44 Adapting Marketing Strategies for Retail Success

45:28 The Importance of Understanding Retail Contracts and Financing

50:29 Closing Thoughts

[00:00:00] Jon Blair: Hey, what's going on everyone. Welcome back to another episode of the Free to Grow CFO podcast, where we dive deep into conversations with brand founders and industry experts about scaling a DTC brand with a profit focused mindset, I'm your host, Jon Blair, founder of Free to Grow CFO. We're an outsource finance firm that specializes in fractional CFO and bookkeeping services for growing DTC brands.

All right. So why the heck should you care about today's episode? It's because we're talking about retail. On our last episode, we, we dove into the nuances of expanding into grocery retail, but there's a lot more in the retail world outside of grocery. And so I've invited my friend Renee Hartmann of CLA on today because she has.

Just a world of knowledge in the retail side of the world, some really incredible experience on her, in her own entrepreneurial journey. But I think she just positioned really well to help us talk through what are some of the tips, the tricks, the hacks, the do's, the don'ts of expanding from DTC into retail, because at the end of the day, it is a different game.

But. If you listen to the episode with Ryan Rouse several weeks ago, he brought up something very important, which is what, depending on your goals and how big you're trying to grow your DTC brand, you may not have a big enough TAM to hit your revenue goals in DTC only, right? Being a DTC only brand, there's nothing wrong with, but you may be limiting how big you can grow.

So if you've got big goals, you do need to consider retail at some point. And that's why I brought my friend Renee on today. So Renee, thanks for joining. I'm looking forward to chatting about this with you. 

[00:01:41] Renee Hartmann: Thanks for having me. I've been wanting to have this conversation with you for a while. So I appreciate the opportunity.

[00:01:46] Jon Blair: Awesome. Awesome. By the way, before I dive into my first question, where in the world are you right now? Because I know that you could be several 

[00:01:53] Renee Hartmann: places. Yeah. I'm in Portugal. So I'm a American as you can hear from my accent, but based in Portugal. 

[00:01:59] Jon Blair: Awesome. Awesome. And I actually met Renee, funny enough, not in Portugal, not in America, in Ireland at an e com event that we were both invited to.

And so that's why I had to ask her, where, what, what country are you in right now? 

[00:02:11] Renee Hartmann: Yeah, it's, it's never a bad thing to meet in Dublin. That's always a good, that's always a good start. 

[00:02:15] Jon Blair: Yeah, that was a blast. I need to go back again when I have a little bit more time to actually explore the country. So what I want to dive into first, honestly, is your background, your entrepreneurial journey.

I think it's really important for the audience to know where you come from because I'm a big believer in, you know, Renee's a consultant. Part of what she does is a consultant. She helps a lot of brands with, with their retail strategy, but she's actually an operator and an entrepreneur first. And so I'd love for you to just walk everyone through your story and how you kind of ended up where you're at today.

[00:02:51] Renee Hartmann: Sure. Yeah. I've actually started out my journey in finance. So similar to to a lot of the people who kind of, I think who you guys work with. I started out in equity research on the buy side, covering the consumer retail sector. So I've always been a, I've always been a fan of retail. I, back in the day was fascinated with Nike and all of those companies.

So. So started out really kind of helping the, the buy side, understand retail and kind of cover the retail sector. I switched over from then into more of an investor relations role. So I worked with Ogilvy and Mather with their investor relations kind of late stage late stage sort of pre I-P-O-I-P-O and beyond.

So worked with a lot of, kind of fast growing startups, and then ended up moving to China with them. So I, I moved to China helping a lot of actually Chinese companies go public in the us. And then, you know, from there, I kind of had been working with so many entrepreneurs, I kind of caught the entrepreneurship bug myself and just decided that that was really, you know, something that I wanted to be doing.

So when I went back to business school I got really involved in the entrepreneurship club at Duke university. I did a lot of work. I did internships in BC and private equity. So working with like sustainable BC I went down to Alabama working with a fabrics company and industrial fabrics company and their, their factory down there.

So. Got a lot of experience from the investor side of things and then decided to dive into the entrepreneurship side myself. So after business school I moved back to China And I, teamed up with former nike china executives and we started up a retail company in the consumer brand So it's sort of a a trial by fire you know, learn as you go type thing.

So you know, we had started out actually trying to make shoes. We made shoes. Then we also branched into apparel. So we did streetwear apparel. So we did t shirts and hoodies and fashion. And I think one of the things that I really learned from that journey is we didn't have much of a wholesale market there in China.

It's really a single brand driven. It was actually like, you know, almost pre e commerce then we were 2005. So it was just like the early stages of e commerce. And we started up our own retail brand. We expanded out to about 25 stores raise funding through the process. And really kind of just, you know, learned a lot, I would say everything from production and supply chain to HR, to marketing, to online, offline expansion and looking at kind of, you know, how we expand in the retail sector, both multi brand and single brand.

So I learned a lot of lessons. I think the hard way of just kind of, you know, getting thrown in there, which I think is what, you know, every entrepreneur does. So that's been part of, you know, the excitement I think I had. And then since then I've been working with a lot of big and small brands to help them kind of expand.

So that's everything from like the large big brands that everybody knows to smaller up and coming a lot of cross border e commerce and a lot of retail and online expansion. 

[00:05:33] Jon Blair: Yeah, so I mean, obviously a super robust background starting in on kind of like the investor lens, then becoming a founder and operator yourself, you know, I, I'm, I'm curious because I did a lot of research when I was at guardian bikes.

We did a lot of research into expanding into the Chinese market and Just what are some of the things well, so let me set the stage a little bit here You know as I start thinking about expansion outside of the U. S.. Ecom or DTC You know addressable market a lot of brands start researching Europe and they're like man The TAM is pretty small there and it turns out every European brands actually trying to come to the US, right?

And so China is an interesting market because it's huge, right? And it's evolving really, really fast. And it's, it's been evolving into a consumer led market for a while now. It wasn't that way, you know, 10 plus years ago, but what are like some of the opportunities that you see there in terms of expanding into the China retail market at some point?

[00:06:37] Renee Hartmann: Yeah. I mean, China is a, China is a challenging market. It's always been that way to a certain extent. I mean, it's a, it's. It was very fast growing. I tend to last year or two, the growth is really decelerated. But there are still a lot of opportunities to go into the market. It's, I think it's about finding the right consumer fit.

So there's a lot of cross border e commerce opportunities. I've done everything from like Douyin, which is the TikTok in China, to Tmall, to WeChat stores, to Little Red Book. So there are a lot of opportunities for that. And I think cross border e commerce is one. That works really well for the market because you don't have to completely enter the market when you don't have to start an entity.

You don't put an inventory in China, which can all be kind of challenging things. So I do see that working. The key is just having the right consumer demand because it's so expensive to drive. You know, it's customer acquisition is tough in every market. China is getting more and more difficult, high cost a lot of activities, social commerce you influencer work.

So it is, I think about kind of finding the right. Sort of niche of consumer demand. That's going to work because I think the days of just going in

[00:07:36] 

[00:07:36] Renee Hartmann: and kind of building it yourself from the ground up, it's really expensive to do that. So I'm seeing people where there is these pockets, it makes a lot of sense, but otherwise it is getting more and more challenging.

[00:07:46] Jon Blair: So, you know, we work primarily with profit focused brands, not, not brands that have a bunch of, you know, Like venture back you know, equity sitting on the balance sheet. Like they have to be really strategic about expanding into retail. Right. And so if you've got a brand that let's say they've reached healthy, eight figures in revenue, let's call it 25, 30 million a year in revenue DTC.

And they're like, Hey, we think we're trying to, we're starting to hit the ceiling of the addressable market DTC, and we neeDTConsider retail, but Essentially bootstrapped, right? We don't have super deep pockets. How do you begin to advise a company on the things they need to think about? If that's kind of their.

Constraints as they're, as they're thinking through a retail expansion strategy. 

[00:08:36] Renee Hartmann: Yeah. I mean, I think the, the key is really, you know, are there, are there multi brand retailers that are a good fit for the brand, right? So that's the, that's the number one thing is, you know, who, who could potentially sell you and whether that's, you know, like one of the challenges we have in China is there weren't many of those, those companies, but if there are those in any market, it could be international, it could be local market you know, finding these retailers who are, you know, Interested, you'll set them apart.

I mean, I think the retailers are to a certain extent, they're a little bit risk averse, but they are looking for new things to drive excitement. And I think one of the areas for brands that, that is super interesting now is the growth of marketplaces for these multi brand retailers. So you've got, for sure, just launched there, you've got Macy's, you've got, and that's allowing them, I think, to really expand their offering and bring in new brands, get more excitement.

But they don't have to hold the inventory themselves. So basically it becomes like a drop ship model. And it's, I think that's kind of a win win for smaller brands to reach out to these retailers and kind of find some ways to help them expand, but not requiring more financial burden on the, on the retailer side as well.

[00:09:35] Jon Blair: That's actually, those marketplaces are the primary, like kind of stepping stone that I'm seeing across our clients that are expanding into retail is like, start there. And yeah, I mean, from the retailer's perspective, the retailer's like, hey, We're drawing off of your inventory and it's a drop ship model.

So they're not taking on the inventory risk and they're also capturing some data and like, what does the sell through look like? And probably able to capture some data on their end too, of like who's buying from you guys. Right. And so it's a nice little test on both sides. It can be challenging on the brand side because You had these inventory stock levels that you were using to feed a DTC demand signal, which demand planning for DTC is like, it's still really hard, but it's at least.

You feel like you have a lot more control over it because you're at least doing it based on the data that first, firsthand data that you have on hand. Whereas when you're working with a retailer and this is what I want to ask you about next is like kind of tee this up for you is when you're working with a retailer, whether it's a drop ship model or you're shipping direct to one of their, their DCs.

You're going off of this anticipated demand, literally based on either conversations with a buyer or depending on the retailer, they may have a platform that I'm going to put this in quotes forecasts for you. Cause like it's always very misleading when you think about the demand planning challenges of expanding into retail.

What are kind of some tips or advice that you have there? 

[00:11:04] Renee Hartmann: Yeah. I mean, I think that's a super big challenge to your point, right? It's like, how do you, how do you have the right inventory? And I think to a certain extent, the marketplaces do allow a little bit of, because you're pulling out of your own inventory, you're not having to allocate specifically for another retailer.

So that does allow you like, obviously you've got to plan for it, but it does allow a little bit of wiggle room. I think from you know, when you're drop shipping to the retailer, obviously, I mean, if they're pre paying for the, Inventory then, you know, you're incentivized, I think, to sell as much as you can to them, but I think it really comes down to demand, right?

You know, it goes down to, you know, can you, especially from a DTC perspective, I think one of the things that traditional retailers are really struggling with is they're finding online sales and e commerce actually like value detracting for them these days, they're having a really hard time with returns cost of, you know, the cost of acquiring customers really high and getting higher.

So I think for a lot of these more traditional retailers, e commerce is. Challenging for them. So I think a lot of what I do see brand actually brings a whole audience group and a whole sort of understanding of the market that maybe some of these traditional retailers don't have actually. And I think that's something that you know, I heard somebody saying, you know, e commerce for retailers used to be a value additive.

Now it's value detracting. Right. So I think they're, they're really kind of looking at it. They can't ignore it. But the same extent, it is challenging to, to, to, to really kind of operate successfully. And I think that's where some of these D and C brands, especially the ones you're working with, who have really focused on profitability, have learned how to do that.

And they can actually add that and can, you know, bring demand in there and almost probably know it better than the retailer, to be honest. 

[00:12:32] Jon Blair: Totally. Yeah. It's funny that you mentioned that because one of the bigger brands that we work with who they recently expanded into Target. Target is like target and best buy, but target is really kind of like the, the primary place they're trying to push volume from a retail expansion perspective.

And, you know, they successfully, they're spending two to 3 million a month on Facebook, right. In advertising spends top of funnel. And so, you know, even though they have, they've reached very healthy eight figures revenue, When they went to target to pitch them, it's like, Hey, listen, you're going to benefit from the halo effect of, I mean, we're spending 25 million a year on Facebook.

Certainly that is going to drive some traffic into target for people who are not going to buy this on our website or not going to buy this on Amazon. Right. And so there is definitely now. That's not, you, you can't really pitch that if you're a brand that's maybe half that size potentially. Right. But, there are definitely, I have definitely seen that actually play out in practice with conversations with buyers.

Like, Hey, listen, we spend aggressively on e commerce advertising. We know how to do it. You're going to get some purchases from that. Right. And so it is, it becomes kind of like a partnership. Like we need as the brand, we need another bottom of funnel. Place for someone to check out. Right. And, and also to hope that we're going to get more eyes on the product that we wouldn't get on our, on our, our e comm advertising, but you guys can hopefully get some people coming and buying something at Target when they realize they find out about that product on Facebook and are like, Oh, now available at Target.

[00:14:17] Renee Hartmann: Yeah, I mean, I think that's where the DTC brands can really have an advantage with the retailers is they're bringing the energy and the excitement and the new diversity and what they're offering, which a lot of these retailers don't. Right? And I think that the flip side is, you know, how do you use that as a DTC brand to get the offline distribution?

Right? So, you know, using the online energy to kind of expand out. From an offline perspective with multi with multibrand retailers. And then I think I do see a lot of DTC brands to open up their own store, single brand as well. Right. So I think that's something you know, I've seen some of the malls that will say, you know, when they have a DTC brand, we'll open up a store in the mall.

They usually will see the mall store go up. And then also the online business go up as well. So I think it's this idea of like the, the blending between the offline and the online can create something that's, that's bigger than adding the two together, right? The, some of the parts work together and they're kind of additive on both sides.

[00:15:05] Jon Blair: Yeah, that's really interesting because we talked so Guardian bikes the company that I was on the founding team of before starting Free to Grow, we had, we had a short stint in retail. Once one through You know, kind of a quasi retail through Amazon vendor central. So selling direct to Amazon.

And then we also had sold an independent bike shops. And what we found is our biggest challenge is that like we had what we called the safest kids bike. Right. And it was powered by our brake that prevents you from flipping over the handlebars. In retail, it's so hard to tell that story, especially when you're sitting in a lineup next to a bunch of bikes that don't have your brake and there's not a person there.

To explain why this bike is safer and why you should care about this break. We tried all this PDP and like, you just couldn't get people to understand it. It required a human. And so that's why we felt forced to go DTC so we could tell the story, but we also didn't know that we were capping our addressable market.

And at some point we would need to figure out how to go retail. And we kind of landed on the, you know, the Apple store kind of like Tesla, you know, Model of like, we probably need to open our own retail stores so that you can have someone walking you through why a guardian bike matters. And so I do think it also, it depends on what you're selling and what is needed to get your value prop across, across to the consumer, right?

[00:16:38] Renee Hartmann: Yeah, absolutely. And I think that's to your point is like, you know, how do you really get that story across? And ideally, You know, I've seen lots of retail, retail stores and brands. Like once you get them into the store environment, people convert really at a, at a much higher level because they get it.

Like you don't, you don't understand it. You got the brand, you can have that experience. And then the question becomes, how do you bring that experience online? How do you bring it into a multi brand? How do you bring it across different channels? And that's, you know, I've seen people do that through social selling, like even doing lives from multi brands, single brands.

I've seen people pop ups that way. I've also seen people kind of take store staff and then do one to one lives. So I think this idea of like, how do you make the two work together is really important because I think that the challenge is like, you know, to your point, like when you, when you open up your own store, it's of course, it's going to be a better experience.

And of course, it's going to be something that you're going to be able to kind of really get that sales process through, but it's risky. You know, those are the good retail locations are. Really expensive. And I can get in, especially when you look in the U S you know, the top malls in the U S are doing better than they've ever done before.

Oh, you know, during COVID, I think everybody thought like the mall's dead, retail's dead, but actually when you talk to the top retailers and the top malls, they have actually higher demand they did pre COVID. And they're there, the store rent is higher. The demand, they've got people lined up to get into these retail locations.

So to get a good retail location, it's expensive. So you've really got to be able to drive that, you know, the really high sales per square meter, but at the same extent, you know, if you go to something that's if you put the wrong location, you can be paying even a small amount of rent. But if you don't have that traffic, so you gotta have a good location at a good price.

That you can support and that those are challenging. If you make a mistake, even one mistake for a small brand that's just starting their retail footprint out, those mistakes can be really costly and difficult. 

[00:18:17] Jon Blair: Yeah, for sure. It's it's interesting because I think that for whatever reason, when I talk to brand operators and they're thinking about going into retail, They feel like they need to go big really fast into retail.

But if you think about just strategy, just like general strategy, best practices in any area of your business, right? Like it's like, what is the smallest move we can make towards what we think is going to work that has minimal investment and minimal and we're limiting our downside and to get a test going so we can figure out if we should invest heavier here, like, Dave Ramsey fan.

He talks about firing musket balls before firing a cannon ball. Cause like back in the day, you only had a few cannon balls. And if you didn't calibrate how much gun powder to put into that cannon with smaller musket balls, you could potentially waste that cannon ball and shoot it over or, or miss your enemy.

And so I think about that same thing with retails, like. So, like, my question to you is what are some of the musket balls or tests that you can fire off that are lower risk, which I think plays hand in hand with being a profit focused brand, right? Like, how can we test to figure out if doubling down and really investing in retail is worth your effort?

[00:19:34] Renee Hartmann: Yeah, I mean, I think the, the best case scenarios with that are probably either, either a shop and shop, which are lower costs where you can partner with, whether it's existing. Department store, whether it's maybe a retailer that kind of is synergistic with your brand, right? Where you can do kind of a small area, it doesn't cost a lot of money, but can bring your brand to life.

Like that's, you know, you take the example of like Red Bull putting the coolers in every single, you know, bar, like you're able to kind of have this branded experience. GoPro did this in a lot of places where you can have kind of like a little small area, or you do something temporary, like a pop up, right?

So I think if you're doing something, which is seen as a test, it's short. It doesn't require a lot of investment in the buildout. So something you can do that's kind of creative and interesting, but doesn't, isn't super costly. I've seen those work really well, even in traditional malls, doing a two to three month pop up just to kind of take a look at it and see, is this the right mall for us?

Is this the right area? I think those can be really good good ways to kind of test things as well. And doing this, like you said, like, Low cost tests, but but also getting in places that have enough traffic that you can actually give it a real shot. I think if you if you hold back too much and you try to do something that's too low cost and it's too conservative, you might get yourself a situation where you just don't have the retail traffic, right?

You need the traffic in order to make sure that to really see if it's going to work. If nobody comes through, it doesn't matter if you have the best thing in the world, you're still not going to be able to get to where you want to be. So it's finding that right balance of like, How can I take a little bit of risk, but not too much risk that's going to give me a real understanding of what actually is possible?

Is this a place I actually would put retail in? Is it actually the right location? That's super important because with retail locations, everything, right? So if you do a test in one location, that's not the same as where you're going to expand. That could be a huge problem too. Cause I think that's one of the things people have to think about is, you know, are you doing this for replication where you're really trying to scale and open up many, many stores, or are you doing it as a one time thing to kind of create some engagement and do some kind of offline activation?

[00:21:20] Jon Blair: Well, you're coming back to something there, which is like, what is your strategy? What are your goals? I think it's not just what you want to avoid doing is trying to expand into retail because you feel desperate from a sales volume perspective or profitability is drying up. And like, the thing is, Retail buying cycles are long, right?

It is like so much different than DTC where you're doing direct response marketing and you're putting a dollar in and you're getting 3 out. It's almost kind of like an immediate dopamine hit. Like you're, this ad's working and we're, and we're like retail buying cycles. You have to wait for catalog reviews and you have to wait for your line reviews.

You have to wait for, you know, seasons. And so talk a little bit about, you know, If you're talking to a D2C brand founder, they've never been in retail before, and they're used to like, being able to, to Kind of toy with demand signals on like, you know, on a daily basis and direct response marketing. What, how do they neeDTChange their mindset and prepare for this difference in how the, the, the buyers work and, and those cycle times?

[00:22:31] Renee Hartmann: Yeah, I mean, I think it really depends on what sector you're in. So fashion, for instance, I mean, fashion is usually buying 9 months out, right? You know, and some of them are even like producing over a year. So I've, I've, I've worked in DTC brands that have tried to go into multibrand and they're like, we just can't, can't catch up with the cycles.

Like we're not planning nine months out. We're not there yet. We're more planning for today. Right. So I think depending on the type of company that you are, there's going to be different ways of structuring that. And that's where even some of like the marketplaces are better because they are for demand for today.

And we're not buying in nine, nine months cycles and going to markets and things like that. So I do think it is, some of it is dependent a little bit on the, the industry that you're in. And I think it's really just about learning the way they buy. How does your retailer buy? How far in advance are they looking?

You know, are there ways that you can help them? I think drive demand for tomorrow. Like they're trying to predict demand as well, right? They have the same problems. They don't know It's either. So I think that there is this ongoing, I think, you know, need for retailers to be closer to the consumer. And I think, you know, you've got companies like Sheehan that are doing this really, really well, and I think have been very successful.

So I think it's creating this kind of want for the retailers to do this. Now, whether they can catch up with it or not is totally different story. So I think that's That's something when you think about, you know, how do you get closer to their buying cycle and just really understanding how that's working.

That's one area for sure. 

[00:23:46] Jon Blair: Yeah. And I think when I think about this from a finance perspective, like you've got to be profitable enough that your, your business is sustainable, right. Without retail. And you, you have the ability financially to wait through those, those cycles because and the reality is you don't even know how it's going to go the first time around.

If you get a commitment to a hundred stores for a retailer, like, you know, you might get all the POs for that. And. There's going to be a line review at some point, you know, later in the year or year. And they make say, Hey, this didn't go all that well. Right. And so like, you've got to be, this comes, this is why we are so adamant about, about challenging brands to, to run their business with a profit focused mindset.

It's about optionality in many ways, right? That like when we're profitable and we know, and we're managing our cashflow well, We have options. We don't have to go any specific route, you know? And so, so I want to talk a little bit about like risks and challenges. We we've already touched on several of them, but like when a brand goes omni channel and has DTC and now has some wholesale and, and, and selling through retailers, like.

What are some of the other risks and challenges we haven't touched on that a CPG brand needs to think through? 

[00:25:08] Renee Hartmann: Yeah. I mean, I think there's, there's a couple other risks. One is you could risk that you underestimate demand and things go really well, right? So there's the risk of that too, which can, which sounds like a good problem to have, but I've also seen brands have problems the other way where it's like, okay, you come off, you come off the bat like really well.

Everybody starts putting in orders and you either can't keep up that same growth. It's kind of a one hit wonder type thing and you can't keep up with it or you're not able to fulfill it. So I think there's the risk of expanding too quickly. So I think you want to kind of, you know, there's also the risk of diluting your brand, right?

You get into too many places that aren't the right place. So I think those are some, some of the risks that sound like good things, but you still have to be careful in that standpoint to make sure that you're really in the right place. So I think that's one of the things that can go wrong. On the flip side, I think, you know, to your extent of your, you make too much inventory, you know, you're basically over investing in inventory and you don't see the sales come out of it either.

Right. So I think it's like, it's. It's really all about, you know, keeping the inventory level in line with demand, which is super hard. And I think, but that's where, you know, so many B2C brands and so many brands in general, it's so much cash tied up in inventory. The other thing I've seen, which I know I, I had this issue at my company back in the day is like, you get, you're hesitant to clear the inventory too quickly, you know, you wait too long to clear the inventory.

And I think, you know, I'm sure you talk about this with your clients all the time, but all that money tied up in cash, you know, all the cash tied up in inventory. So being able to kind of. Quickly make those decisions and either discounting or getting rid of, or doing something that you kind of, when you have those times that things aren't exactly matched up, being able to quickly correct is always hard.

[00:26:38] Jon Blair: Yeah, for sure. And I mean, there's, from a finance perspective too, you have to realize that there's alongside some of these challenges you're talking about. There are some advantages of moving to retails that if you start, if you start selling direct to a retailer, you've got these POs and you have a contract alongside it, right?

You can start financing receivables, which you couldn't do when you're ready to see brand, you can, there's PO financing out there where like, if you don't have the cash to get a big PO made but you have a contract and a PO in hand, there are lenders who will come alongside you and they'll finance the building of that, of that purchase order, and then they'll allow you to take that loan out with receivables financing.

And so like the cash conversion cycle changes and. Especially at the beginning when you're trying to kind of get your legs under you, like your retail legs under you, like getting better at at inventory planning and managing receivables, some of these financing tools that are available to a brand that has wholesale, but, but not to DTC brands can help while you're getting over that learning curve.

There's also this, I mean, this is probably one of the most common things that I see brands complain about when they expand into retail, omnichannel pricing. Right. And challenges of like, you're laughing because it's like, it is, it's like this thing that is, and when you talk about profitability, like it can cause huge issues, like walk the audience through some of the challenges that happen with maintaining pricing across channels.

[00:28:12] Renee Hartmann: Yeah, I mean, I think channel conflict is a huge thing that can happen, right? And just being able to kind of, you know, look at, you know, how are you managing across retail as well as online, both your own, you know, because you, you obviously, when you're coming from B2C, you've got full control over your own pricing, but, you know, being able to kind of add a, at a multi brand and wholesale, you don't have that control.

And also, They may not always tell you about it. So you may have sold it to them in a wholesale price. And then at the end of the day, they're, they're changing as they could be below you, above you. So I think, you know, just staying in constant contact with the retailer and really being able to understand, you know, what are the parameters and, and just also being aware that you don't have control and giving up part of that control as part of the difficult piece of that as well.

So, you know, on the, on the, on the one hand, like you said, you're getting, you're getting cash up front. You're getting a lot more certainty, you're getting distribution, you're getting, you know, to a certain extent, you're getting, it's a traffic generator itself, right? Offline is also a traffic generator, just like it is online.

So I think there's a lot of pluses that come from that. But there are some negatives to a new with, with all of that, you lose control, you lose control of the way things are merchandise. I think, you know, making sure you've got mystery shoppers going in all the time and seeing what's happening and really just keeping track of it, because I think there's a potential for things to kind of get out of control.

And that is. Is the hard part of it is from a, both a brand standpoint, a pricing standpoint, and just also getting that understanding of who your customers are, right? Once you're going to the retail side of things, you lose your one step removed again, right? You don't know who your customer is anymore.

You don't know who's buying your stuff. The data you get from the retailer is a, it's not always timely. And it's also not always as, as particularly when you compare it to what you're getting DTC, you don't have nearly as much data, nearly as much information of like, who actually is your end consumer?

How much time do they consider or do they. Did they want to buy something they didn't have it in your size? Like you don't have any of that information. So I think the more you can kind of, you know, figure out how to track that and to be more comfortable with that loss of control, it does change the dynamic a lot.

[00:29:58] Jon Blair: Yeah, for sure. One other, so there's, when we were selling direct to Amazon through Amazon vendor central and they were the retailer, you know we had this, I mean, handshake like map pricing agreement. Right. And They kept dropping the price on these SKUs, and we couldn't get a hold of our buyer.

When we finally did, he was like, hey man, I'm not doing that. Like, our algorithm just, it analyzes demand and stock levels, and it'll just drop the price if it thinks it needs to drop the price to just move through. And he's like, I can overwrite it, but I'm like, I'm managing so many different SKUs. I'm not like checking on the pricing of all of these all day long.

So like in that case, they didn't even really know what was going on. And going back to like the demand planning challenges, we, we decided to pull out and go strictlDTC C because of the pricing issue. And then ultimately, like we just couldn't get them to demand plan. In a way that made sense, they were buying overbuying SKUs that we were telling them to buy less of and underbuying SKUs that they should have bought more of based on the data that we had.

But it's just, it's harDTCommunicate, but what this really comes back to is goals, right? And is that we had a goal that at the beginning we're selling the safest kids bike, we. It was a premium safe kids bike. And we had to monetize our patent because that was the bread and butter. And it really did make these bikes more valuable.

Right. And so we decided for the season that the business was in, we haDTControl our pricing and we haDTControl the story. And so we decided to go to DTC for that season. And that was part of our goals, right? To like really break into the market and make sure that people valued our bikes and understood the value prop.

Now. My buddy, Ryan Rouse, who I mentioned earlier in this episode, he's like, look, most brands, generally speaking, can get up to 50 million max DTC. And there are very few brands who break through 50 million in revenue. There are, there are some exceptions, but you're probably not the exception.

You're probably the rule. And so I'm saying all this. Because this does come back to goals. Is there a reason you want to be a brand that's bigger than 50 million? Is there a reason you want to get into retail? What are some of the things that you kind of help your clients think through as it relates to goals and making sure that retail like aligns with their goals?

[00:32:30] Renee Hartmann: Yeah, I mean, I think, I think it goes back to, you know, one of your points of what's your end goal, right? Are you trying to scale? Do you think there's, and this goes back, I think, to your discussion around TAM, right? Are there new clients, new customers that you couldn't get from online? And I think we see that a lot, you know, if a brand is doing that, you know, if you're up to 50 million.

You're able to open up some single brand stores as long as you're doing it in the right place in the right area. So I think then it comes down to if your goal is to scale, if that's your goal, right, then your goal is to look at let's, let's open up multiple single brand stores and let's expand outside of there.

And then I think it's more about, you know, really kind of coming up with the right strategy. Can you franchise, can you, you know, do shop and shops? Are you going to be opening them all yourselves? Are you doing them in areas where you can easily replicate them? Right. So for instance, like. You know, one place that's cool to open up single brand stores is like Abbot Kinney in Venice, right?

It's like it's a cool place, but there's not that many of those in the, in the country, right? So that's a one time thing. So you open something on Fifth Avenue. That's not replicatable. So going into malls that you can go and you say like, hey, I've seen how you're doing in this area, then I can bring you into other locations as well.

And that works both for a multi brand as well as a single brand, which is, how do you create something that's replicatable that someone can look at and say, oh, yeah, I can scale that. I know in this mall, I know people do this. If you're doing this, then I know I can take you some. So I think it's kind of, you know, creating that, that path for how you're going to scale offline as well as online.

Right. And to the extent that you can get, you know, areas where they're, they're working together, right. Where you're able to kind of build both pies out of it. So I think that's it. That's a big piece of it. And obviously one of the big reasons is going to be acquisitions. It's going to be one growing the top line, but I think to your point, You know you know, I think you're, you've seen this and I've seen this with the VC market and the private equity market is, you know, they're looking for profitable businesses too, right?

So you can't let go of that goal of being, of being profitable because just going out and trying to get top line growth in, in retail, either, it's the same problem as DTC. That's not where people are investing. It's not where people are looking. So certainly you want a large brand that's additive to a brand portfolio for sure.

But we still are not seeing that, that old ways of like, Hey, let's just get, get growth at any, at any price. So it is that profitable growth, whether that's in retail, whether that's in DTC. 

[00:34:35] Jon Blair: It's funny. Cause I talk about this a lot of my content that businesses exist to be profitable. Right. And the thing is, even in asset bubbles, where there's like a product category, that's getting VC and private equity money.

I would say, and I would even venture to say primarily VC because even private equity, by the time, by the time, like a venture capital bubble moves to private equity, they're requiring you to be profitable at that point, right? So it's like, venture dollars are coming into, you know, some, some category, like right now, probably AI, if I can be honest with you, right?

Like, that's, that's a bubble right now. The thing is that even those venture dollars. Are expecting profitability at some point, even if you're growing it at whatever costs unprofitably in the meantime, they're expecting to either be able to sell that thing for a profit or eventually that business to become profitable.

And so like, I think, unfortunately, a lot of early stage, there's just this thing that happens. I I've been a part of it earlier in my career where it's like. You think that like the sexy startup entrepreneur thing is to like get into that really sexy category right now. Like I said, at AI as an example, and just raise a bunch of money and like grow, grow, grow, grow, grow.

And then like, someone's going to buy you for more. Right. And it's a binary outcome that like it either happens or it doesn't, and you really have to time things right. And it's harder to do than people realize it is. And the longer that you wait in that, but in that cycle, The, the, the more that it's going to be demanded that you can like demonstrate that there's a path to profitability.

And I'm saying all these things because if you just start from day one, even if your business is not profitable on day one, and you say like, I'm hell bent on figuring out how to make this thing profitable and, and on every decision to consider how this is going to impact profitability, just having that mindset will put you a cut above the people that are out there raising money and just hoping that they, they time that boom.

Right. Which is like, in my opinion, it's not real business strategy, right? That is not real business. No, it's, 

[00:36:41] Renee Hartmann: it's, I mean, it's all luck, right? I mean, that timing is all luck, right? right place at the right time. Even, you know, the other thing about brands is it's, you know, it's not always linear the way that things expand, right?

And you might, you might hit it one time and that's what kind of gets your growth up. So it's very, very difficult to predict. And I've seen a lot of companies that. Have raised during that boom time and then they weren't able to kind of hit their milestones coming out of it and they've got to do a down round and they've got to like work on, you know, and I know that I've heard this from a lot of the VCs out there is they've got a lot of DTC companies that, you know, they've, they've done down rounds and they don't have a place for them to go.

So they want bad businesses and 20, 30 million businesses, but they weren't even profitable fast enough. They raise it too high of a valuation. So I think there's a huge down as well. That can really come. Bite you, and then you end up losing all of your motivation, all of your incentive stuff, you know, investors, everybody.

So, I think that, you know, even and if you, hey, you know what, if you're profitable and you time it just right, then, hey, you get a better valuation along the way, right? But at least you're doing the multiple on EBITDA. So you still need something to start with. And Brandon, if you can make your multiple higher, it's awesome.

But you still need, you still need a profit to start. So I think that people go into it that with that mentality, they're going to be much better off, even though it is tempting to take that, you know, and I think this is one of the lessons I have too is. I think when you have VC money, there's a lot of pressure to scale quickly.

And you know, one of, one of my friends told me back in the day, it was with that, I don't know if you remember this one, it was like this it was the, one of the original, like quick commerce, like online. And they were saying, you know, one of the challenges they had is like, how do you, you, when you're scaling something, that's not totally working, it's not profitable.

And then you're, you're scaling it fast and fast and fast, like you're just multiplying your problems basically. Right. You didn't have it worked out in a short time. So I think that. That, you know, forcing you to kind of scale quickly, which is what a VC does. It doesn't always work well, especially on a retail side and you've got inventory and you've got real costs that are doing this, it's not just advertising costs, you can turn it on and off, you know, you've really got to look through that.

So I think there is potential to scaling, like potential downside of scaling too fast when you're not ready. 

[00:38:43] Jon Blair: Totally. Totally. I want to talk about marketing a little bit because. You know, we've kind of danced around this several times in this conversation so far, but like you got a DTC brand, they've reached healthy eight figures.

They're probably really good at direct response marketing, right. In a, in a, in digital advertising channels. And so they're used to that. Like that direct response, put a dollar in, I get 3 out, right. Understanding first order acquisition versus how LTV grows over time. You get into the retail side of the world.

And you don't necessarily stop that you, you, if that's still working and it's driving profitable DTC revenue, you keep doing that, but what are some of the other things that a DTC brand, what are some of the mindset set shifts or some of the kind of new strategies that they're not having to do in the DTC world that they need to start thinking about from a marketing perspective as they launch in retail.

[00:39:39] Renee Hartmann: Yeah, I mean one of the things that I think retail marketing really involves is a lot of events, you know you're doing like a lot of like in person whether it's a tasting in a grocery store or whether it's a fashion show or whether it's Like this kind of local active like the local activation local outreach partnership.

It's kind of this like grassroots type Type local marketing, but I think from a DTC brand, you haven't done that as much. And it really does take a lot of, you know, just hard work at the retail side. Just get people to show up in your store. You know, it's not easy and it takes a lot of time. It takes you know, it takes clienteling.

It takes having store staff that understand you. It takes a lot of training. And I think that's a whole area that is not really done in the DTC, you know, world. It's so something that is, I think, a different. Type of marketing that is a little bit more, I guess, I don't know if it's old school or just off offline, but this, and again, it depends on what kind of you know, brand you have, what kind of product you have, but you know, if it's grocery or even say it's like, you know, beer or anything like that, like a lot of events, you know, it's being showing up in the store, going to beer tastings, you know, doing all that kind of stuff.

And if it's in the fashion side, it's, it's really. Talking to personal shoppers, you know, it's really like a more of a old school kind of marketing. So I think that's something that is totally new for people and they've got to adapt to that. But on the flip side, I think, you know, DTC does understand that online marketing better than retail.

I think the retail world's been a little bit slow to understand it. That's one of the reasons they struggle with being profitable online. 

And I think, you know, you bring up AI, I mean, it's really, Causing a lot of challenges with email marketing is day. The email market is getting harder and harder to do.

And that's something that used to be easier for grants to do, but it's really not easy. Any, 

[00:41:16] Jon Blair: it's just for sure. Yeah, yeah, for sure. It's interesting. I think where my mind starts going, actually, as you're talking through that just now is that one thing that I see these DTC brands need as they expand into retail is they really need to bring on.

At least one person, probably one to start. And oftentimes I see it being a consultant that just really understands retail, right? You don't, you by no means, I've by no means seen that these brands have to come in and gut their staff because they know DTC like their inventory and supply chain people, they're totally able to adapt their finance people able to adapt.

So are a lot of their marketing people, but they need someone to point out these things, like point out how demand planning is going to change, point out how the buying cycles are really long, point out how marketing needs to change. Like what, what I know you do some of that walk me through a little bit about how you play that kind of like point person when a brand is looking to expand into retail.

[00:42:17] Renee Hartmann: Yeah, I mean, I think it really comes down to kind of, like, coming at it from, you know, all angles. Right? So if it's, you know, if it's if it's something in, say, grocery, you know, you look at everything from retail media to you know, in store type marketing. And I think if it's something around a single brand, it's really looking at incentives for 1 thing.

Right? So, how are you incentivizing your sales staff? Are you giving them the opportunity to be doing client telling? Do you have technology in place that's allowing that? Are there local thought leaders that you can bring in? So take even taking the idea of kind of influence or marketing offline, right?

You know, do you have you know, advocates that are coming and bringing people into your story doing small events? Are you having influencers come in and doing live stream? So I think it's really just kind of. Looking at the type of brand that you are and who your customer is, then what are all the touch points that you can, that you can bring to life?

Because I think it's different for every brand, every product. Like there's no, that's the unfortunate part about it. You know, I wish there was like one like playbook you can do for everybody, but it just doesn't work that way. And I think it's a, it's really a matter of understanding the customer and the local, you know, environment there of like, who, who are the right customers?

Are there. You know, are there pockets of demographics that are there? Are there, you know, use cases? Are they coming through other partners where other people have them? So it's, it's really just kind of taking a holistic look at the customer and really, really understanding the customer and getting a good sense of that.

I have seen, you know, more and more of these like AI tools now that are saying, you know, how can you understand your offline customer as well as your online customer? Because like I said before, like the DTC brands, I think they're so used to really understanding their customer. Retailers are not that used to understanding their customers, especially brands who are a couple of steps removed.

So I think. To the extent you can really understand who that person is and then work backwards from there, then you're able to, you know, kind of come up with strategies around that. But it really all starts with knowing who your customer 

[00:43:57] Jon Blair: is. Yeah, I think, didn't we both sit down and have a conversation with a guy in Ireland who they developed some sort of an AI tool that actually like tracks through, tracks movement around stores and like it basically gathers, it gathers information through AI on, on.

Information that's seeking to understand the people that are in retail. And like, I think that's really more and more of that's going to. Be popping up left and right so that, so that you can get some sort of Intel on the people that are walking into physical retail and purchasing. 

[00:44:34] Renee Hartmann: Absolutely. And that's even more so for the suppliers, right?

So say you're like, you know, you're at a, like, I was talking to those guys that are called vision R and they were saying like, one of the examples they gave is, you know, if you're, if you're a retailer, if you're like a food retailer in Ireland, And if three out of every 10 men who walk up to your shot to your counter and not buying Guinness, something's wrong, right?

Like, what's wrong? Is it? Are you out of stock or something off on it? Do you not have the right product there? But they're like, we can tell you immediately if they're not buying 30 percent of them aren't buying Guinness, something is wrong with your store, right? So that and that's the kind of level of understanding you need to get.

But if you're Guinness and you don't have that, you don't know what's happening at the store level. And there are lots of things that could be happening. And I've even seen people do AI for it. Visual merchandising, like, Oh, you're supposed to have this new signage up, but it's not up yet in every place.

And, you know, how do you, you know, you're looking at it versus the end cap versus in the aisle. You know, there's all these different ways you can bring it to life, but I think it's a, having the visibility to know what's happening in it and then being able to kind of like quickly make those changes. 

[00:45:28] Jon Blair: So what, one thing I want to talk about really quick here when I, when I chat with my buddy, Adam, about grocery retail on our last episode, we talked about the contracts that you're going to sign with retailers and like being aware of the fact, like, you know, the example I use is like as a DTC brand, you're not like getting every Every one of your customers to sign a contract, you have like terms and conditions on your website and stuff.

Right. But like, they're not going to charge you back out of nowhere for things and whatever. Right. And so what are some of the things that you think brand founders who are looking, who've never seen a contract with a retailer before, what do they need to know before they sit down and sign that contract about like what kind of protections and things these retailers typically have?

[00:46:16] Renee Hartmann: Yeah, I mean, I think again, it goes back to, I think, different different ones for different types of retailers, but definitely having some good legal advice on, you know, what are the different things that could go wrong? You know, what are the what are the could they could they giving them? Could they returns?

You know, could they returns a lot of times there are negotiation ways that you can kind of handle things like. Like for instance, in fashion, one of the things that we see is sometimes, and sometimes you want to give some of these, you know sort of contract negotiation points. So for instance, one thing might be, you know, say for instance, you have a fashion line and you sell them for one season and you don't have as strong of a sell through as you wanted.

Like one way you can do that is you can have a return policy where you let them return it and then send something back. So you're not really getting screwed, but you're basically providing an opportunity to give them new inventory so they don't cut you off basically. So there's some things that seem like, is this good for me?

Is this bad for me? But I think you have to look at it on a holistic standpoint of what is the, if the end goal is to create a longterm business with this person, you want to have some flexibility in your contract for them. It's not all about having everything completely structured to a sense that they can never return anything or they can never send anything back because then you're kind of stepping on yourself for something in the future.

So I think it's kind of. You know, making a good balance between what's good for you today and then what's good for you over the longterm. So you don't want to be too tight with it, but then you also don't want to get it so loose that you're never getting paid. And I think the other one that comes up a lot is payment terms.

For sure. So I think that's why when you think about cashflow it was specially the bigger, the retailer, the longer it takes them to pay. And so I think that's one that's, that's a difficult thing. Let you talk a little bit about financing. But I, I certainly see that with the big companies that's gets harder and harder to get paid by them.

[00:47:47] Jon Blair: Yeah. On time. Jen, they all pay generally speaking, right? They're, they're credit worthy, retailers, but yeah. And you also have to realize like, let's say it's, you have net 90 with target, right? They don't pay on day 90. They do weekly. Payables runs, right? And they have a cutoff usually that's midweek. So if day 90 is on their cutoff day, you're probably getting paid on day 97 a week later.

Right. And so you gotta be, you know, if you have someone in finance on your team, who's worked in retail before they know, like net 90, like target really pays like more like in a hundred days. Right. And the other thing is too, generally speaking, depending if you ramp into retail fast and you don't have like a big equity cushion sitting on your balance sheet.

You probably are going to need some amount of receivables financing, or you at least want the option to be there. And so knowing the lenders, that's what, that's what a good CFO can do is connect you with the right lenders. So you have the option to finance those receivables in the event that you need to.

You know, the thing I always say is like debt is neither good nor, nor bad. It's a tool. Right. And like, yeah, you can use it as a tool wisely. You can use it as a tool unwisely too. Right. But like it exists, a lot of omni channel brands do have receivables financing because like it really is needed. You can't just.

You can't pay your vendors when the goods ship to you and then sell them and be out the cash for a hundred days while you're waiting to collect and finance it all with your own cash flow, right? So 

[00:49:21] Renee Hartmann: especially when you're growing, it's even harder when you're growing, right? I mean, then that's where the cash flow gets even worse.

And I think there, you know, the other thing that some of these retailers can help is negotiation with your suppliers as well. Your, your vendors and your suppliers too, because to a certain extent, you If they know you're selling in target, they know, again, they also know they're going to get paid. Right.

So eventually, so, you know, there are ways that as you grow, you know, being able to kind of negotiate with the suppliers and your factories to see, you know, can you get better terms with them? That's obviously highly negotiable and highly depends on your relationship with them. But to the certain, you know, you can, you can really help your financial situation a lot if you can get better terms with your supplier as well.

So to the extent that this allows you to do that and adds credibility with them, certainly that's a great way to do it as well. 

[00:50:01] Jon Blair: Absolutely. Absolutely. So I, we got to land the plane here and I want to, I always like to say for at Free to Grow a big part of our business is that is the personal impact that we have on our employees and on our clients.

That's really the heart behind us. Like I got into the, I'm a brand operator heart, but got into consulting. Cause I'm like, I want to make an impact on a lot of different people. And so everyone that comes on this podcast, I always ask them about their personal life because it's super, super important. You, you actually, like I mentioned at the beginning of the episode, you have, you have kids and you move them to another country and you guys are in Portugal right now in this season, like walk me through a little bit, like the personal what is it inside you that like caused you to do something that a lot of people would think is adventurous.

Right. And move your kids to another country. Talk to me a little bit about like the, you know, Renee Hartmann, what that experience has been like, and what you think that's doing for your family. 

[00:50:59] Renee Hartmann: Yeah, I mean, I think it was you know, my husband and I, we've lived in China for about 10 years, but our kids had never really lived outside of the outside of the country.

They remember that much. Our son was, I think, one, one and a half removed from China. So they'd spend most of their time growing up in Southern California. So for them, this was a huge move, you know, so I think one of the reasons we did the move at this time, I think part of it was COVID of sort of this You can work from anywhere.

Then the other one is my son was going into eighth grade. And we kind of got to the point of like, if we're going to do this, we've always wanted to live in Europe. We've always had this, you know, desire for them to be international. But if we don't do it soon, we're going to run out of time, basically.

He's just getting too old. So I think for, for them, it was, you know, finding the right school that we liked here. So we found the international school that we liked. And I think it was a big adjustment for the kids to kind of learn to, you know, that they're, they're my son's in ninth grade now. And I think there's 26 different nationalities in this class.

You know, it's a really diverse group of people. It's like learning to adapt, you know, to being this kid who's grown up his whole life in Southern California and knows that lifestyle to kind of all of a sudden coming and being international and talking about football, which used to mean soccer and learning all the teams and learning all the players.

So I think it was a big adjustment for them, but you know, I think it's been, it was a little bit of a rough first year, but I think they're kind of getting the point where they're really understanding the benefit of it and just kind of trying to see, looking at things from different perspectives, I think, understanding how to, you know, interact with people from all different cultures learning different languages.

So I think that's hopefully widening their worldview is kind of the goal. I mean, that was our goal is to get them to be a little bit more international and just a little bit looking at things from different perspectives. So I think that has helped them you know, really understand kind of how we can do that.

[00:52:33] Jon Blair: I think it's really cool. Like I'll give a micro example. That's probably not as cool as moving your family to another country, but like we moved, I moved my family outside of the city of Austin a year ago. And we live near this about a 10 minute walk away from this local private airport. And I walk my kids up there several times a week and it's private.

You can just walk up onto the runway and just watch airplanes take off. And my three year old son. Is obsessed with airplanes now and he wants to be a pilot and I was talking with my wife and I said, you know He wouldn't be saying these things if he didn't get exposed to this, right? So and it makes me realize as a parent how important it is for me to take the time to intentionally expose my kids to things and certainly like, you know, there are things my parents didn't expose me to That I got into later on in life.

So it's not like they're doomed to not learn anything new about the world, but this is a precious time in their lives. And as parents were, we can really expose them to new things. And you never know what that may do to their future in a positive light. And so I think what you guys are doing is really, really cool in that regard.

Super, super cool. So before we close here, I'd love If you could just let everyone know a little bit about what do you do at CLA? How do you help brands in, in, when it comes to their retail strategy and where can people find some more information about you? 

[00:54:00] Renee Hartmann: Yeah, so I've got I'll, I'll drop it in the notes, but you can go to www.

renee Hartmann. com. And what we do is we've been working with a lot of companies, you know, just particularly in international expansion has been one area, you know, a lot of work in the China market. I'm seeing a lot of European companies that want to expand into the U. S. right now actually is a big area.

I think one thing that we see with European companies quite a bit is that they can kind of find a market niche here, but then it's really about kind of expanding globally. So I think that's one area. And then also kind of your point of, you know, offline, online, online, offline. So you know, so happy to connect with people as they go that way.

You know, one of my personal passions is working with entrepreneurs. That's an area that I've always really appreciated. It's something that I just think is fun working with kind of being able to make an impact. So I, I enjoy that as well, just like you do. So it's it's, it's, and I think from, from me you know, I've always been very international.

So kind of being, being able to build these bridges as well. 

[00:54:57] Jon Blair: Awesome. Yeah. Listen everyone who's listening to this episode, if you need any help or insights or, you know, someone to help you think through international expansion, expansion into retail in the U S and outside of the U S Renee's your, your go to.

So hope you enjoyed the episode. This was chocked full of a ton of super useful tips. Renee, I appreciate you joining me and look if you want more helpful tips on scaling a DTC brand, consider following me, Jon Blair on LinkedIn. And if you're interested in learning more about how Free to Grow's e commerce accountants and fractional CFOs can help your brand scale alongside healthy profit and cashflow, check us out at freetogrowcfo.com. Until next time, scale on.

How to Expand from DTC to Retail Profitably

Episode Summary

This episode of the 'Free to Grow CFO' podcast, hosted by Jon Blair, features an in-depth conversation with Adam Siskin, co-founder and partner of The Platform CPG, on the intricacies of expanding a direct-to-consumer (DTC) brand into the retail space. The discussion covers important considerations for DTC brands looking to venture into retail, highlighting the differences in finance, operations, sales, and marketing challenges between DTC and retail. Adam Siskin shares his extensive background in the CPG world, emphasizing the importance of understanding margin profiles, the impact of trade spend and chargebacks, and strategies for contract negotiations with distributors like Kehe and UNFI. Moreover, the episode touches on the crucial elements of debt financing for covering the cash conversion cycle gap in wholesale and offers personal insights into balancing an entrepreneurial career with family life.

Episode Transcript
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00:00 Welcome and Introductions

00:39 Adam's Entrepreneurial Journey and Transition into CPG

08:27 Expanding DTC into Retail: Strategies and Considerations

21:28 Understanding Trade Spend in Retail Expansion

24:55 Diving Deeper into Chargebacks and Cash Planning

25:50 Challenges and Strategies for DTC Brands Entering Wholesale

34:27 Navigating Contract Negotiations and Distribution Challenges

40:53 Financing Strategies for Wholesale vs. DTC Channels

48:50 Balancing Entrepreneurship with Family Life

52:51 Final Thoughts 

[00:00:00] Jon Blair: Hey, what's happening, everyone. Welcome back to the Free to Grow CFO podcast, where we talk all things scale on a DTC brand with a profit focused mindset.

I'm your host, Jon Blair, founder of Free to Grow CFO. We're the premier outsourced accounting and finance firm built exclusively for growing DTC brands. I'm really stoked to have everyone joining today. I got my buddy Adam Siskin on here, co founder and partner of platform CPG. He's got a background in the CPG world that extends.

Far and beyond the platform CPG that we'll get into in a little bit here. But Adam, I feel like we're always texting and. Chatting on the phone on the side and it's nice to finally have you here for an actual hour to chat all things scale on a brand what's happening, man. 

[00:00:46] Adam Siskin: I appreciate you having me on here.

I know we ping each other a lot on LinkedIn, which is fun. Definitely collaborate on brands. So it's, it's great to get a discussion going. Talking about the industry and different facets of it. 

[00:01:01] Jon Blair: Awesome, man. So what we're going to be talking about today, the last few weeks, we've talked a lot about DTC advertising, scaling through scaling ad spend.

We're going to actually talk about something that's really front and center in the DTC world right now, and that's, that's expanding into retail. And I'm kind of calling today's topic like tips and tricks, do's and don'ts, advantages and drawbacks of expanding into retail. And the reason why I've got Adam on is because Adam is, Adam, in the CPG world and especially in food and beverage, Adam's got a really robust background in scaling brands within the retail and even more specifically grocery retail.

And there are expanding into retail is something that depending on the size of your DTC brand, you neeDTConsider expanding into retail at some point. My buddy Ryan Rouse always talks about like, Hey, listen, if you're, if you're never going to expand into retail, you have to understand. That there is a ceiling to how big you can grow your DTC only brand.

And there's nothing wrong with that. If you want to stay DTC, there's absolutely nothing wrong with that, but know that you are limiting. And if you want to expand beyond a certain revenue, depending on what your category is, you need to meet you need to meet your customer in brick and mortar retailers.

And so depending on how big you want to grow, depending on your product category, retail absolutely should be considered, but fair warning. It's a different game than DTC Now, don't be scared and, and don't be scared to the point where you don't want to ever consider expanding into. Retail, but understand it comes with different finance challenges, different operations challenges, definitely different sales and marketing challenges.

So I've got Adam on today. So we can chat about the nuances, the tips, the tricks, the do's and don'ts of expanding into retail. Really focusing in on, on food and beverage and kind of like grocery retail. But before we do that, Adam, I want to have you give everyone a little bit of your background and your entrepreneurial journey.

So people can understand why. I mean, and these are my words. I consider you to be a guru in the grocery retail kind of finance side of the world. 

[00:03:22] Adam Siskin: Definitely. I've been in the CPG space for about eight years. Prior I was playing finance roles within the healthcare system. I did some private equity, a little bit of tech and.

My transition into CPG was, was actually by accident. I was marketing on Craigslist about 10 years ago from Microsoft Excel and financial modeling and things like that. And I found a programmer that started working for me about 12 years ago and built up this Craigslist business on the side where when I was turning it into six figures, I told my boss I'm out of here and he was like, He laughed at me when I told him why.

And, you know, along the way, I actually met my mentor to this day. His name is Eric Skay. So Eric was the the CEO of Rayo's when they sold off to private equity, Sovos about eight, nine years ago. And Eric actually was at a Mets game on Craigslist and texts and messaged me for help. And I I built him a financial model.

He was actually at the time working with a client of mine today. called Riot Energy. It was called T Riot back then. They changed the name to Riot Energy so I helped them with some modeling there and then I went on my own and The rest was history. I hopped into Rayo's, you know, I worked across him and the CFO built infrastructure.

They sold off to Sovos. I went into Sovos portfolio more as like a technical analyst. So I didn't have the CPG knowledge and experience and the network. So it was really more like technical finance of what you would think of like with a financial analyst. And so my program and programmer and I would automate.

All the different operational functions, whether it was demand planning, production planning, trade planning, report automation. And so I, I started off in that arena and then, you know, I would say over the last eight years, I've touched maybe about a hundred brands as a fractional CFO. So I have a firm called Silvercrest Solutions which does fractional CFO work.

There's data visualization, deduction management. And so. I've touched a lot of brands from a finance lens. I've placed a little bit of capital as well in Chicago. And then in the last four years, you know, I launched what's called the Platform CPG with my business partner, Paul, and another colleague of ours, Jonathan, that are based in New York.

And so with the Platform CPG, I really started to learn about the ins and outs of the business, not just from like a financial view, but Of FP& A and all that great stuff, but really started to learn about sales, operations, marketing. And we launched this company three, four years ago. We we've target kind of wealth funded early stage brands that we can accelerate through a roadmap into the market and get commercialized.

And it's been quite a journey, but I've definitely learned. A lot of aspects of how to enter the space and how to be successful. 

[00:06:29] Jon Blair: Dude, Craigslist stories are the best. One of my, one of my best friends I met through Craigslist in a former life, I was in a thrash metal band that got signed to a record label, put out one record, went on tour and our, I found our audio engineer and producer on Craigslist.

And we're now like best friends. And I, I always make a joke. I go, Hey, Matt. You're the coolest person I've ever met on Craigslist, but 

[00:06:53] Adam Siskin: I, I actually met, there was one other I met the stepdaughter of Anna Wintour on Craigslist too. So Anna Wintour is you know, the chief editor of Vogue, Vogue magazine.

And so I actually helped launch a company called Masonette with a couple of women at a Vogue and it was a wildly successful company. Next thing you know what I'm flying to California and Beverly Hills. I'm working with, Joyce Azria, who's the daughter of Max Azria from BCBG Max Azria. So, as you can see, I'm not a stylish person but I was working in the fashion industry right around the same time as Rayo, so definitely got a you know, a glimpse and touch of outside of the food and beverage vertical doing that.

[00:07:41] Jon Blair: By the way, for those of you who don't know, R A O S, R A O S, that's the pasta sauce. If you haven't seen that on the shelves, and or there's not someone in your pantry, you neeDTCrawl out of the hole that you're living in because R A O S is absolutely huge. My wife, when she found out that you worked with R A O S, Adam, this is a funny side story.

She was like, she's such a fan of R A O S that she's like, what? This guy, this guy worked with rail. So anyways, side story we can, we can get into chatting about DTC expansion into retail now. Again, to set the stage of this conversation, the reason why I'm bringing this up is because, Free to Grow, we work with profit focused DTC brands, right?

And we, we do their bookkeeping and we serve them as fractional CFOs. As we look. At scaling a DTC brand profitably, again, depending on your strategy, your target customer and your product category, there inevitably becomes this conversation that arises where we need to talk about when is the time to expand into retail and should we consider doing that and, and, and if, and when we do.

What are we getting ourselves into? Right. And so, you know, I, this is kind of a broad question, but I think a great jumping off point. Like it, if a brand comes to you that has a digital, you know, a DTC presence and they're, they're looking to consider the transition into, into retail, what are some of the first things that you start asking them about or advising them on before they decide to like dive into retail expansion as a strategy?

[00:09:20] Adam Siskin: Definitely. The first question I ask anyone, regardless of where you're starting is like, what's the aspiration? So what are your goals of your business and why do you want to enter retail? Because that's going to often drive more specific feedback as to the best way to enter retail, you know, based on your own strategy and goals and what you envision.

What I would say overall is like the number one thing that has to be looked into is margin. And that's just true with. Any product, whether you enter the DTC space, the retail space, is there a business model that's meant to be had? Because in DTC, you're selling direct to the consumer. So you're skipping about like a 35 or 40 point margin take from the retailer.

And then a distributor like a UNFINK, he might charge 15 points for a DSD distributor that goes up and down the street, might charge 25. So now all of a sudden you have, you know, over 50 percent of your customer. Selling price to the consumer being taken out by the retailer and the distributor. And so understanding your current margin profile and then at scale where you can be, I think is definitely one of the first areas that I look into to make sure that there's a sound business model entering the landscape.

[00:10:38] Jon Blair: Yeah. I, you talk about this a lot in your content. So do I like those margin considerations upfront rather than after the fact. Right. Like I've seen a lot of brands make mistakes where they, they expand into a channel, like they take on, you know, Whole Foods or Sprouts, a small number of accounts or H E B or something.

And they're stoked because they get into the stores and they're like, let's, let's land, land in the stores and then let's figure out how to make money afterwards. Right. And What, what I see happen oftentimes is, and I see this in DTC too. It's not just expanding into a grocery retailer, right? Is that like, Hey, let's get some traction.

And then let's figure out how to turn a profit from a unit economic standpoint. And, and the reality is I just see it as. Honestly, next to impossible to reverse the profitability equation. If you have bad unit economics to start with, as opposed to like I would say some of the more savvy brand founders that I work with, they are thinking about unit economic margins from day one, right?

Unit contribution margins from day one. And they're, they're literally baking that into how they're thinking about. Their supply chain costs during the R and D phase and thinking about pricing. Right. And they're thinking about that on the front end, as opposed to the backend. Do you see similar issues with brands at times?

And do you see it? Is it possible to like go back and try to raise prices or cut costs? Try to retreat to become profitable when you made the mistake of not being profitable or profitable enough in the first place. 

[00:12:18] Adam Siskin: Sure. I would say most if not all, and all might be a little aggressive, but, but most CPG brands that launch are not going to be profitable.

And there's multiple reasons why that might be a. You don't have economies of scale. So if you're coming out of the DTC space and you've grown a nice size business, call it 20, 30 million. Cut that in half because that's the revenue that you're going to have actually in wholesale. So when you think about like your scale, if you're a 30 million dollar online business, you're You're, you're really a 15 million wholesale business because 50 points of margin.

So when you just think about like the number of units you're selling, that's kind of how I look at it. And so let's say you start to really get economies of scale at like between like 30 and 50 million, where you can really start to drive down those cogs. I always say that in retail, like you got to have 60 points of margin in the foreseeable future, like further out as you've grown, because.

Your trade spend, let's say, could be 20 points, you know, 15 to 20 points at scale. You know, you might have five to seven points of freight out. You might have three to five points of warehousing. You got your 5 percent broker. And so when, when this all stacks against you, the business model of being in wholesale is like, how do I get, you know, a 10 or 15%, even a margin?

That's really the ultimate goal. And the only way to get there. Is with a really, really high product margin that has to be assumed at some point in the beginning, most C. P. G. Brands. Again, I'm gonna make a generic comment have around 30 points of margin. So if I go to, like, call it, you know, 50 brands, I think, like, 40 out of 50, maybe higher.

Will be around 30 points of product margin and I just I define product margin as literally your cost of goods sold. So you're packaging raw material, your co packer and the price you're going to sell to the to the retail or to the distributor. So it's not trade spend. Usually you're going to have around 30 points when you're not at scale.

Ideally, you're at like 10 points. You're in huge trouble because you're just going to be burning a ton of money. If you're, you know, a lot higher, great. You're going to be burning less money, but in the beginning where a lot of brands make a mistake is, is that they get super excited, like you said, about getting into Sprouts.

The number of brands I've seen just get crushed by going into Sprouts early stage. Is, is really, really heavy because of the slotting fee. Sprouts is going to ask you for one or two cases, and if you get a 400 door rollout into all their doors, I've seen brands with like a six figure bill, where after the fact they go, Holy shit, I'm now getting charged back and not seeing any of the revenue collection occur.

From Kehi, who is the main distributor of Sprouts. So, I, I agree with you that, like, really looking at the upfront cost of entering a channel or a specific customer and building out that full contribution margin down the line is essential so that you can really appropriately assess cash burn and capital you need to get through the, Elementary kind of steps of entering retail with the fully loaded cogs and then making your way towards profitability.

[00:15:47] Jon Blair: Dang. There's too many things we could talk about in there. So I'm going to have to lead us down the list one at a time. Let's start first with what I'm just going to call sales and marketing costs because well. Actually, let me summarize something, two points that you made that I think are super helpful that I want to make sure the audience takes away one plan on your gross margin being lower, right?

Because the price point's going to be lower because, because the retailer needs to take a margin. And so you've got, you've got to be able to bear that. And then number two. There are sales and marketing costs that are associated with retail. And I think there can be, I've seen this misconception, right?

That like DTC is really expensive when it comes to marketing sales. More sorry, marketing costs and retail is not, not as expensive. You know, they've already established those retailers already established traffic and they've kind of done the heavy lifting. Of marketing for you, right? And so your, your marketing costs are going to be lower than DTC Not necessarily the case. And that's where I want to go a little bit deeper here is that like me through, you talked about trade spend, you talked about slotting fees. Walk through some of the typical sales and marketing costs of working within a retailer and just some of the just rough average benchmarks you can expect to spend in those areas.

[00:17:09] Adam Siskin: Sure. So. I'm going to start off with the answer for DTC for food and beverage, which I know is your arena and why it's important is that you're actually seeing a lot of brands retreat from DTC that are food and beverage specific with a low AOV, which. That's kind of your your bread and butter, but like it's kind of the same workup is that if I'm selling a product, let's say an energy drink that sells for 2.

99 in retail. Sometimes you can sell it for a little bit more online. Let's say it's 40. It's going to cost you, if you're shipping with FedEx or UPS, call it like 10 or 12. So 25 percent of your, 25 percent of your revenue is going to freight. And then as you know, acquisition costs have gone up increasingly and maybe 50 percent is your ROAS and now all of a sudden you have 75 points of your revenue.

Gone. And, and so a food and beverage brand is very, very quickly underwater because that's shipping or the pick and pack fee that costs you 3 on the 40 order ends up, you know, being significantly. A part of your revenue. And so when you look at kind of the wholesale arena and you look at kind of like at the very top, if you have 30 points of product margin to start with a early stage brand, that's in a very.

Call it aggressive or competitive arena, which I would say a lot of brands are, especially ones that are kind of innovative or trying to disrupt. You're spending like 20 to 30 percent on trade spend out of the gate. So like your margin could be almost wiped away immediately if you only have 30 points of margin to start.

And the reason is the following one is that you got to go discount. And, and on the shelf. And so when you get like the buy one, get one freeze and this and that, you know, depending on the category, it could range from like 50. 10 to 30 percent with the majority being closer to like 20, 25, 30, especially the brands that you see hit the headlines on LinkedIn or social media.

So you're spending out of your 30 points. Let's just say it's 20 points. Your shipping is probably another 10 points because you're not shipping full truckloads. So it's going to cost you around 10 percent just for LTL. So if my 20 points of trade and my 10 points of shipping that wipes out my 30 of margin, now I'm at zero.

Now you got your three PL fees. You got your warehousing, you got your broker. Now you're, you know, further underwater. And so a lot of times a brand's contribution margin, which are all of those expenses lined up, you could be at like negative 10 percent in the beginning. And you really got to scale until your product margin goes to 40 points to 45.

And then everything gets optimized, your shipping goes down to seven. Maybe your, your trade probably won't go down as fast as the other components, because you still have to aggressively discount. And then there's marketing. So like with marketing, it's a lot more complicated in the wholesale space, because you're, you're really going about shopper marketing, for example, in different facets.

So there's demos, there's Instacart. There's digital, you know, online targeting that you can go after certain geographic zip codes. There's, you know, top of funnel where it's brand building with events and bottom of funnel, which is really conversion that you go after. So your marketing dollars are spread really, really thin across your distribution.

Which is why I always tell brands to go really narrow and deep to start than doing like a nationwide, launch that requires every dollar to be spread out thin across the board. 

[00:20:55] Jon Blair: Hmm. That makes sense. That's, that's good. That's good advice. I, I, some might already know this. And or have been able to, you know, infer it from like, or, or from what you just ran through.

But what is the definition of trade spend and what does that money really go towards? 

[00:21:13] Adam Siskin: Sure. So trade spend, there's a few aspects of trade spend. One is just pure discounting. So again, when a product, when you're lowering the price of a product to the consumer that's a bulk of trade spend. And so usually you're, you're creating what's called a trade spend calendar for a whole year with a retailer where you might promote like one, like, let's say two weeks out of every quarter, you can price promote down.

For two week periods, you know, throughout the year, that's a bulk of trade spend. There's also like early pay discounting. So like if you get paid within 10 days there's, you know, 2 percent discount. I think UNFI recently actually. Increased it like closer to 30 days. They called that, you know, early spend trade early pay discount.

And then oftentimes you're getting charged back by UNFI and KE. If you have something shipped late or you short ship there's also something called an off invoice where during a period of time, you're giving a discount to the distributors. Who are supposed to pass that down to independent stores that don't have, you know, true discounting programs.

Whether that happens or not is a big debate in the industry. So anytime that you're lowering the price that you're physically getting back, whether it's to a distributor or to the consumer that gets charged back to you, that's what hits trade spend. 

[00:22:43] Jon Blair: Got it. Got it. So the point is when we go from comparing a DTC brand, it's.

And the contribution margin profile of, of being the retailer, right. Versus going wholesale and selling to either two distributors that sell to retailers or sell direct to retailers. There's all these different deductions and costs. That are, that are unique to wholesale and even some that are unique to grocery, right?

That, that you have to be prepared for and that your existing margin structure has to be able to bear, right? Exactly. And so what's interesting is that like, and this is like, this is a, like you mentioned, you've said a couple of things. You're like, hey, this is a general statement. There are caveats to this.

But like what I tend to see does really well, in terms of like transitioning from DTC to retail. Is a product that already has a very killer gross margin. And what we call, some people call it fully loaded gross margin. We call it contribution margin before marketing, meaning that after you back out, effectively shipping and fulfillment costs, right from gross margin.

What I, I have a couple of brands that Free to Grow works with that they're gross margins, like 80 to 85%. Right. And then after you back out shipping and fulfillment, they're working with like a seven, 70 percent contribution margin before marketing. Now keep in mind. That lowering the price point for wholesale, right.

Is going to bring those percentages down, but there's a good amount. You then compare that to their AOV, that 70 percent times their AOV. The point is they've got a good amount of dollars, right. Of contribution margin dollars to work with that they can use to pay for the wholesale you know, price discount to pay for the trade spend.

But one thing I want to dive into a little bit deeper, you mentioned charge backs. And there's this whole concept. I actually have a, a pretty deep wholesale background early on in my career before getting into DTC. So I've dealt with a lot of this stuff firsthand chargebacks and just overall planning, right?

There's this, there's like demand planning. And, and planning for what you think is going to get ordered versus what actually gets ordered. And then there's cash planning, which includes not just the fact that there's receivables, right. As opposeDTCollecting your cash, right. Upon upon sale, like you do DTC, but there are also these deductions, chargebacks that you can and should expect when you actually finally receive payments in the wholesale world.

So as it relates to cash planning. And specifically deductions. And demand planning, what are some of the challenges that a DTC brand needs to, to be able to weather as they move into, into wholesale? 

[00:25:41] Adam Siskin: Yeah, I would say the planning, there's a lot more variables and I could be wrong on this, but.

Because I'm not a D2C expert by any means, the brands I work with oftentimes have a lighter D2C profile. I almost call it like a marketing spend because they're not making money on the channel. And so, I feel that like at the D2C side, it's like a very calculated approach. Because the moment that a product is in a warehouse, You don't necessarily need a massive operations team to sit there and ship it to different DCs and locations of distributors.

You know, it gets picked and packed. And so when I look at kind of the margin profile of DTC and the margin profile of wholesale, you know, from like the chargeback and trade perspective, specifically, I think that one should always expect to be like I said, around 20 percent if you are indeed going to be price promoting throughout the year.

And then I think again, like if you take your price to a distributor, when you double that, that's essentially like what the consumer is paying. And so there is a lot of margin loss that happens there. And so my, my biggest advice. For someone going into the wholesale kind of arena. And this is kind of at the platform.

Like what I do with my partners is, is like, we go really narrow and deep. I want to hit like 10 or 20 stores to start and really crush it in those stores and understand the full contribution margin of everything that's occurring. Cause it's not black and white out of the gate. You do need to spend on marketing.

You do need to activate. Consumer awareness. And so I really think that narrow and deep approach allows you to kind of dip your toe in without going too, too deep, taking on a massive financial burden. And that's usually the strategy that, that I do when entering the retail landscape, as it's not, no one lays out for you, this is exactly what's going to happen.

Every contract and every is a negotiation depending on who your customer is. 

[00:27:48] Jon Blair: So on the charge back side. Right for I don't know if this is the right term. I think this is what we useDTCall it back in my wholesale days, but like non compliant shipments, right? Whether that's you screw up the barcode or some sort of required documentation where the shipment doesn't have, you know, the right.

Unique identification on everything. This is something that DTC brands who are expanding into retail. And by the way, this is not unique to grocery. If you're going to sell them to target, you're going to sell on the Walmart. You're going to sell into like non grocery retailers. These kinds of chargebacks are universal to selling wholesale, the, you know, regardless of the product category, you have to ship shipments to the DCs or to the warehouses for these retailers in a very specific way.

Cause they're large, Right. They're churning through a ton of inventory that they're receiving into the warehouses. And so you have to have the right, you have to have barcodes. You have to have very specific information. Some there is even specific information around like how large your pallets can be, how the pallets are loaded.

So walk through, I think a lot of DEC brands aren't aware of this. Walk through like some of the common requirements for. Putting together a compliant shipment that doesn't get charged backs assessed against it. And so that so the D2C brands listening can like understand what they have to like what they're gonna have to adhere to operationally just to ship shipments in a way that the retailer will actually accept and not charge them back for.

[00:29:22] Adam Siskin: Yeah, so I would say out of the gate, you're going to give your like palette configurations and pricing and weights and everything like that up front. So when you're like, you want to find K here, the two largest distributors, when you onboard with them, there's a meticulous process that you have to go through so that you are providing like all the dimensional and physical weights of your products and configurations.

So you're oftentimes not getting charged back specifically for. Those reasons being off, but more so if a shipment is late. So if you ship something that's late, you're going to get a fee hit back at you for a late shipment. If your shipment is not in full, you might get a charge back because you partially shipped.

You know, I would say. Operationally, those are kind of the chargebacks that can occur. They're not necessarily that large as a percentage of like your overall chargeback. Some like hidden ones are, you know, Khe for example, charges you back 2% what they call as like their bi, their BI fee. 'cause they let you have like a portal access.

So they're taking 2% no matter what, like crazy. Then, then. You know, unify it's optional, but I think they're starting to migrate more to it being mandatory. But then also like, they're going to hit you with like 2 percent this early pay discount. Even if they don't pay early, they're just going to hit you with it until you fight back.

And then the moment you fight back and you go through kind of the, that process, they'll stop doing that. So like, if you think about the business model of like a unifier, Kehi, If they're making 15 points of, of margin, from what they're paying for the product to then to the retailer, their business model is like operating on like a couple points of EBITDA.

So anytime that they can charge back like a couple points for data or two points for early pay, that's a massive amount of additional EBITDA that they're actually taking on because their product margin, like the brand that's at 30 points, they're starting at 15. And then when they take out all the costs of their drivers and their trucks and this and that, I mean, they have a couple of points left.

So the hidden fees are really like that BI fee for the data. You know, if you activate new warehouses, they charge you for those. Each SKU gets charged out of the gate. So there's some upfront costs, but there's actually like a lot of third party firms out there that are specifically built. To manage deductions and chargebacks, they actually send you like PDF files that are not in tabular Excel format.

So you got to convert them and, you know, slice and dice. So they make it like really challenging to actually like digest your chargebacks. One company I work with a lot is called PromoMash. There's a guy named Yuval that owns that company and PromoMash has probably one of the leaders in like, Managing and disputing K, he and you and F I and it's, it's an entire business in itself due to like the complexity and how tedious it is to truly manage it down to the invoice level.

[00:32:37] Jon Blair: Yeah deduction negotiation or chargeback disputing and reconciliation is a huge effort. I've been through a lot of it in my early days and it's like it, it can feel like a losing battle if you don't know what you're doing. And, and it's funny cause so in the Amazon world and the DTC world Amazon takes, there, there are costs and fees and deductions that you get from Amazon that actually can be disputed or, and are invalid, but it's really hard to fight back against them and to know which things to fight back against.

So there's whole companies out there that you can pay to go get these charge backs resolved and get those fees back and get what's called damage goods paybacks, and they just charge you a percentage. So anyways that this is like super helpful next level, advice for any of you d2c operators out there thinking about expanding into wholesale These are the things that a lot of d2c brands Go into wholesale thinking like, Hey, we need another channel to capture more TAM and to overall bring our, our, our you know, like weighted average marketing efficiency up, and then they don't realize they're getting into some of these things from an operational and even cashflow planning challenges standpoint, again, I'm not saying don't do it.

I'm saying. These are the tips and tricks, right? These are the things you need to know going into it, right? So you can bake these into your plan. So there's something that we've kind of danced around here. That is incredibly important when we think about setting up an expansion into wholesale, to make it, to, to set it up so that there's the highest likelihood of profitability.

There's the contract that you're negotiating, right? With whoever you're selling to, whether it's direct to a retailer or, or the contract you're negotiating with a distributor you're not negotiating a contract with every customer who buys on your Shopify store, right? But you're definitely, there's definitely a contract in place with your customers on the wholesale side of the world.

And it bakes in these requirements and these deductions and the rights that That the that your wholesale customer has to deduct all of these charges. And furthermore, it, you know, the rights that they don't have so that you know what to fight back against when you have a customer or when you have a client, Adam, that is negotiating a contract with a Kehi or maybe direct with a grocery retailer, what are some of the major terms?

You get asked for advice. Like, Hey, what do we need to look out for in this contract? What's kind of like your mental checklist of what you've got to make sure you go after in that contract. 

[00:35:24] Adam Siskin: Sure. So. What I'll say is, is that there are, like I said, two large distributors, Kehi and Unify. They are, they're your best friend and they're your worst enemy because they are the ones that are going to be moving your product nationally across the country.

And they also have all the major contracts with the big retailers. And so it's a necessity to use them. You, you can put together. A network of, of smaller distributors outside of them. It's very tough to do it and it's more expensive. So overall, like they have a pretty cookie cutter blanket contract that they're not going to deviate from that much.

And so there actually is very little that you can negotiate within the contract. Because if you want to do business with them, like this is what. They are going to operate by from moving your product from, you know, point A to point B, essentially. And so, the major things, like I said, is, is this can't be negotiated, but you, like, the 2 percent discount, you can't get that taken out of the contract that easily.

I don't know that I've actually ever seen it taken out. And so, While you're not managing that in the contract negotiation, you should definitely do that on the backend. The one thing that, that I suggest for some brands to look into is FOB pricing. So basically you can do delivered pricing to Kehi and UNFI and in the earliest stages, it can cost you like 10 or 12 points of revenue.

To deliver your product and, you know, pallet size or multi pallet size shipments, or you can have UNFI and KE pick up from you and, you know, they have much, much stronger buying power with carriers where it might only cost you like 6 percent of your revenue or 7%. So there's A world where you can save like four or five points, so I think while that's not necessarily a contract negotiation because you have optionality of what of where you want to go, definitely something in the contract that you should look for is if you want to price it, pick up or delivered and there's benefits and challenges of both, of course, outside of that, you know, there are off invoice promotional periods. They're going to push you to essentially lock in an off invoice period, which basically means you need to give the product to K here, you and if I typically for 15 percent less during those windows and supposedly they pass that on to the customer, which is, which is debatable.

That I would definitely negotiate hard. Cause I don't think that the ROI. You're going to really see there than actually delivering those kinds of savings directly to the customer. 

[00:38:09] Jon Blair: Interesting. That's super interesting. Yeah. And I mean, so the FOB versus the delivered pricing, I like that you called that out at guardian bikes for a short period of time, you know, we were primary, primarily a DTC brand, but for a short period of time, we sold direct to Amazon on Amazon vendor central, they're buying containers.

A product from us. And, you know, even though we had to drop our price to allow them to have their margin. One thing that we found is that when we had them pay for freight and just deducted from the invoice, like you said, it was about half of what the cost would have been for us to do it. And it was because they have economies of scale and, and negotiating leverage right with the carriers.

And so that was one thing that actually helped take a bit of the sting out. Of the wholesale versus the retail pricing margin impact and one step further too I don't know if you can you can't really necessarily do this with grocery, but but other product categories We eventually negotiated a direct import program where we were actually having them Purchase FOB factory port, like origin port, right?

So we weren't paying to have it come from China, come into the U S and then having them pay for shipping from our U S warehouse. We had them, we had the retailer, Amazon pick up the goods and take title to them at the China port. And they could get, they could get that those goods moved from the China port to their warehouse.

Like for like a third of the cost of us importing them and then fulfilling them direct to Amazon after that. So like for product categories outside of grocery, if over time, and you usually can't do this right out the gate because they want to test your volume, right? They want to give you small tests that are lower risk for the retailer, as opposed to like buying a whole containers, a lot more inventory risks that they take on.

But if you can, over time you know, if you ship some sort of a consumer product that isn't perishable, if you can, and you're making the product outside of the U S if you can negotiate direct import. And even containers at a time, the economies of scale that you start realizing within a wholesale.

Are actually much larger than you might think if you get the retailer to actually pay for the inbound freight. So, so there's, I want to, I want to shift directions a little bit. I want to talk about financing, right? For for wholesale the wholesale channel versus DTC. So like in the DTC world, when we're talking about debt financing specifically, the two primary needs are for inventory and for ad spend.

And inventory is usually the bigger need because there's no receivables to use as collateral, right? Which lenders like a lot more than inventory. Cause it's more liquid, especially if the receivable is a, a big retailer that's known to pay on time. Right. So you have this less liquid asset in inventory, but it is the primary asset that needs to be financed as you're scaling from a debt financing perspective.

So there's very specific lenders and specific types of types of debt facilities that tend to be best for that. But when you're, when you're expanding into, into wholesale and you've got receivables and inventory, And, you know, the challenge is you're buying inventory and you have payment, maybe little to no payment terms with your co packer, but then you're selling to a distributor or direct to a retailer and they're giving you have like net 90 day terms.

You've got to, you've got to finance that cash gap, right? And debt is a tool that you can use. To help you finance that gap, what are some of the strategies or lenders? Just what, what are some of the things that you think through when, when you need to help a brand with debt financing to, to close that cash conversion cycle gap?

[00:42:04] Adam Siskin: Yeah, yeah. And that's the biggest difference, as you pointed out, with the cash conversion cycle for D2C versus retail is going to be the AR, right? I think terms with your co packers and, you know, suppliers and things like that on the AP side are going to be the same, you know, as online, but the AR is where it's non existent online, really, or maybe it's a 12 or 24 hour ordeal.

That's really where. Retail based businesses start to get financing is on the AR. And so like we discussed with trade spend, if you sell a thousand dollars of goods, you might only get paid back 800 because of the trade spend. So what the providers out there are going to look at, there's, there's kind of two types.

There's factoring, which is a lot easier to do than getting a line of credit. When you factor your accounts receivable, you can actually be like a tiny business doing, you know, 10, 000 a month, 5, 000 a month and there's factors out there that will start that early and scale with you. So essentially, the factors are going to look at your cash collection and see what percent of your invoice you're actually collecting because of all the chargebacks and promos that you're running.

And so let's pretend it's like 75 percent that they're going to advance you. Every single time you get an invoice, you can submit it to the factor and they'll wire you that 75 percent and then they essentially collect the cash from the customers. So that's one form of factoring that I would say there's a lot of players out there that will do it.

There's, you know, a lot of regional banks, there's a lot of private companies but you got to go invoice by invoice. Then there is getting a line of credit. Now, most players out there, debt players, Are not providing you a line of credit until you're at least 5 million in revenue. So like, you know, there's one called blue ocean.

There's one called assemble brands. There's one called Dwight. You know, those are three major players that are out there that do lines of credits. Most of all three of those primarily have that like 5 million entry point in where they want to give you like a million dollar line of credit. And so. What they do is, is they do a similar formula for your line of credit where they'll take, let's say, like 75 percent of your AR, but then they'll also take like 50 percent of your, your COGS, right?

And obviously they're going to look at the type of product you have, and like, can it sell easily from like a liquidation perspective, and they'll put a borrowing base together with those metrics. The best way to get a line of credit is not when you absolutely need it. So waiting until your cash goes down to zero is not when you want your line of credit because they're not going to give you one.

So a lot of the brands that I work with that are heavily capitalized, we're going out getting lines of credit while we have a super strong balance sheet so that we go through all the due diligence and underwriting and get the most favorable terms. Yeah. Most of these line of credits don't have an unused line fee where you're being charged for not using it.

So you can sign up for the line of credit and then essentially you don't have to pull on it until later down the road when it makes more sense. If you're sitting on, you know, two years of capital for operating capital. Why are you going to spend, you know, 15 to 18 percent on your line of credit voluntarily while you have that much capital in hand?

The, the debt players will give you a reason why you should do it, and, oh, you should never use your equity dollars, you know, you should use your debt dollars for inventory. But if I'm sitting on two years of cash, and I can earn five and a quarter percent in the money market, or I can pay you, 18%, you know, I'd rather keep my money in the money market and fund my own inventory because I can't earn 18 percent elsewhere like you'd be paying.

And so that's, I, those are kind of the, the two profiles of how to get debt in the space. 

[00:46:07] Jon Blair: Yeah, that was a really, really solid overview. And you know, this is just kind of like an FYI to the people listening. Dwight Funding also loves Ecom. They were, they were our lender for a time at Guardian Bikes, but they're also really big in food and beverage CPG.

So, you know, they, they, they'll look at both receivables, like Adam mentioned, and your inventory as what's called a borrowing base and the percentages that, you know, generally speaking, 80 percent of, of AR, although I've negotiated higher, and generally speaking, the lenders will tell you 50 percent of inventory, although I've negotiated up to 70.

You know, if you have a solid CFO who knows how to work, who knows these lenders and, and understands how to negotiate, you can get much better rates and just favorable terms across the line of credit structure. I will say, I highly recommend, obviously I run a fractional CFO firm. So I'm you know, biased here, but like, don't go at raising a significant line of credit without getting some sort of advice from a CFO.

Even if it's just like. Asking some questions and getting some high level free advice from a potential you know, fractional CFO candidate. It's like these lenders, look, there are plenty of lenders out there who are good people, but they're in the business of protecting themselves. And so like, they're not going to give you the most favorable terms out the gate.

They're going to give you their boiler plate, cookie cutter contract and a term sheet and contract. And you have to know. How to push back and where you can push back and where you need to like, hold off and the lender's not going to move on that. Right. And so that that's a spot where we help a lot of brands because debt financing is, I always say like debt financing is not something that you should rely upon a hundred percent in your capital structure, but it's a tool and it should be part of your capital structure if you're running a consumer brand, like it absolutely should be.

There's a place for it, especially when you have asset bases like AR and inventory. That expand and contract as you are like either seasonally or as you're like you know, fulfilling big orders to certain retailers and whatnot. So, well, look. I feel like I got to have you on again because there's a bunch more that we didn't get to, but we're going to have to land the plane here.

Before we, we kind of shut down this episode, I think I see some Play Doh back there right to the right of your, of your right arm. So like you're, you're not just, a CPG kind of operator and CFO. You're also a dad. I always like to end these episodes talking about something like, you know, personal.

Walk me through and because like, I'm asking you this question because I have three little kids and I think we're about the same age, have very, both have very entrepreneurial backgrounds. The biggest thing that I'm, I'm challenged with every single day is what I always jokingly say in my, in my content is scaling early stage businesses while also scaling an early stage family, right?

Trying to be a good dad and be a good husband. I'd love to just hear a little bit about like, how you have navigated being a, a husband and a father while also being a, Early stage hustler like I am and and just how hard it is to balance those things. 

[00:49:35] Adam Siskin: Yeah I think when you're in the entrepreneurial arena and you're very motivated to Grow, you know, it's always on your mind like business and growth and partners and ecosystem.

And so You know, what I've done is, is I've made conscious moments in my day to focus on my kids. So I take my daughter every day to her preschool. So I, you know, 7. 30 drop off, I'm there every single day. And then typically I'm picking her up at like 4, 4. 30. So I'm grabbing her, I drop her off. I have a nanny.

Sometimes I get a couple more emails in. I'm usually logged off at like 5. 30. So. I might text if someone, you know, in like a Pacific time zone is, you know, reaching out to me, but, but generally, like, I'm shutting off my computer and I'm, like, dedicating that time with my family from like 530 to 7 or 730, And so I I'd say I'm pretty good at like setting boundaries for like active, active work so that I can have my dinner and things of that nature.

Same thing on the weekends. I try not to work on the weekends unless it's like a quarter end. So I think really putting up those guardrails, just, just like you would with like your own clients and business setting expectations. I do some, I do it very similarly with my family to make sure I can get that time.

And hence you see some kids stuff in my my back here and here, you know, I have a little play mat sometimes where my daughter can be dropped off. Try to hide it, but didn't, didn't quite get all of it in 

[00:51:16] Jon Blair: there. Well, I have a keen eye for having a five year old, a three year old and an 18 month old that, that, that's the first thing I saw, but behind me, you can't see it.

See it. There's all kinds of crazy kids stuff. And usually when I go out my, my office, I it looks like a a target toy aisle, like threw up all over my house. That's usually what's going on behind me, but cool, man. Well, this was an awesome conversation. Listen for everyone listening DTC operators out there, like.

Adam went through a bunch of super helpful next level advice on just what to expect when you're, when you're expanding into wholesale. At the end of the day. As you know, scaling your brand up to this point, you're never going to build a plan perfectly. You're never going to be able to predict everything that's going to happen.

But today Adam took you through some, some real key areas for you to consider as you're thinking through expanding into retail. It's definitely a strategy that makes sense for D2C brands to do at some point, depending on your aspirations and your goals, but know that you are You're opening up a vertical in your business that is different than DTC It doesn't mean it's good, it doesn't mean it's bad, but it's different. Be prepared for the difference. So Adam, before we kind of shut it down here, where can people find more info on you, Silvercrest, and Platform CPG? 

[00:52:40] Adam Siskin: Yeah, so I'm active on LinkedIn, so you can always DM me, Adam Siskin. I have, you know, two websites, silvercrestsolutions.

com and the platform cpg. com where people can reach out. So I'm always doing, you know, every week I do three or four calls with founders. A lot of times my relationships are informal in the sense that I'll help with an intro you know, provide advice, not necessarily within an agenda, as we all know, it's a really tight knit industry.

And so definitely networking and providing guidance as much as I can. 

[00:53:18] Jon Blair: For sure. Definitely reach out to Adam if you have any questions about scaling and in the grocery retail landscape. He's my go to. I'm texting with him all the time and he's the first person that I introduce people to if they have any sort of challenges with scaling and in a grocery retail.

So that's all for this week's episode. I hope that this was helpful. If you want more helpful tips on scaling a DTC brand, consider following me, Jon Blair on LinkedIn. And don't forget, if you're interested in learning more about how Free To Grow's e-commerce accountants and fractional CFOs can help your brand scale alongside healthy profit and cash flow, check us out at freetogrowcfo.com. And until next time, scale on!

How to Use Your Brand Story to Scale DTC Profitably

Episode Summary

In this episode of the Free to Grow CFO podcast, host Jon Blair, founder of Free to Grow CFO, engages in a deep dive into scaling a DTC brand with a profit-focused mindset alongside Chris Lang, co-founder of Fresh Chile and a client of Free to Grow CFO. Chris shares his entrepreneurial journey, from struggling to find his path through multiple universities to launching a successful creative agency and several businesses, including Fresh Chili. During their discussion, Jon and Chris explore the importance of storytelling, authenticity, and creating a brand that stands for something in today's crowded market. Additionally, they discuss some strategic aspects of running a DTC brand, such as insourcing versus outsourcing production and marketing, addressing seasonality in business, and integrating personal faith into business operations. The episode provides insightful tips for DTC brands on crafting a compelling brand story, connecting with customers authentically, and strategically navigating challenges to scale profitably.

Meet Chris Lang

Chris Lang is a creative entrepreneur from Las Cruces, New Mexico. His focus on brand development and business strategy has helped launch multiple Shopify brands across the apparel, food, and wine industries, generating over 8 figures. Fresh Chile is now in the top 10% of all Shopify stores. He is working on donating over 1,000,000 meals to his community (currently 500,000).

Episode Links

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

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

Free to Grow CFO - www.freetogrowcfo.com

Fresh Chile - https://freshchileco.com/

Episode Transcript

00:00 Welcome to the Free to Grow CFO Podcast

01:30 Introducing Chris Lang: A Serial Entrepreneur's Journey

04:46 The Power of Storytelling in Business

09:20 Crafting a Compelling Brand Story for E-commerce Success

14:24 Creative Strategies and Authenticity in Marketing

21:26 Navigating the Creative Process: Insights and Tips

27:13 Outsourcing vs. Insourcing Creative Functions in DTC Brands

30:02 Unlocking Business Growth: The Importance of Knowing Your Numbers

31:40 Outsourcing vs. Insourcing: Finding Your Business's Strengths

33:32 Maximizing Agency Relationships: Tips for Brands

35:20 Navigating the Challenges of Creative Agency Collaboration

38:47 In-House Production and Fulfillment: A Deep Dive

44:34 Seasonality and Scaling: Strategies for Year-Round Success

51:58 Faith and Business: Integrating Core Beliefs into Your Brand

56:31 Closing Thoughts

[00:00:00] Jon Blair: Hey, what's up everyone. Welcome back to the Free to Grow CFO podcast, where we talk about all things scaling a DTC brand with a profit focused mindset, I'm your host, DTC Blair, founder of Free to Grow CFO, the premier accounting and finance firm for growing profit focused DTC brands. Stoked to be back this week, chatting with my buddy, Chris Lang, co founder of Fresh Chile and one of our Free to Grow CFO clients, Chris, it's great to have you on man.

How you doing?

[00:00:31] Chris Lang: I'm doing well. Thank you. 

[00:00:32] Jon Blair: Chris is a good friend of mine and you CFO clients.

He also has a really unique perspective. on the entrepreneurial life. He's, in my opinion, a serial entrepreneur has had his hands in several different areas of business, still does to this day. Also a, a former agency owner on the marketing side of the world. And so I'm just really excited to, to you know, continue our weekly theme on chatting about how to scale a DTC brand and, and thinking about some of the different aspects of scaling that help, Skill with a profit first mentality.

And so Chris to get started, I'd love to run through, let have you run the audience through kind of your, your background and entrepreneurial journey. That has brought you up to this point. 

[00:01:24] Chris Lang: Yeah, definitely. I think, you know, I was, I was lost as, as kind of a individual, you know, going through college, I went through six different universities and I really struggled to kind of find what I was looking for.

Even it wasn't until I was 30 until I started my first business, which was a creative agency. And, but I, I just loved, you know, Marketing, but I didn't know it yet, but I love taking photos. I love, like, building websites and I love telling a story and that's really the basis of everything. And so with the creative agency, I ran that, you know, quite successfully here in New Mexico, worked with Virgin Galactic, New Mexico State University done work for ESPN and, you know, The outdoor channel and various other, you know, clients as well.

But what happened was, is I want to tell more of my community story. So in 2016 started Oregon Mountain Outfitters which is a local apparel brand. And with every purchase, we would donate a meal back to the Las Cruces public schools. And in 2020, we paid off that debt for all the families on the reduced lunch program here in New Mexico.

And so that's kind of how I got started with Fresh Chile is Randy kind of knew about me in the community at that point and kind of reached out to me and he was making a fresh red chile from the farms here in Hatch, New Mexico. Hatch is the chile capital of the world. And we live just 30 minutes from the farms here in Las Cruces.

And so he was making this with his wife, Carol, and in the kitchen, and they were just basically, sort of just doing it as a gift around the holidays. Cause late season is kind of September, October. And then around the Christmas time, they would give it to his real estate clients. He knew he had something cause his clients kept asking more and more for it.

And they were like, okay, well, we got to take this online. Who do we talk to? And that's kind of how I kind of got started. 

[00:03:34] Jon Blair: So when I first met you guys when I was first introduced to you guys as, you know, potentially a prospect that could work with Free to Grow CFO, I think I had an intro call with, with you and you said, Hey and then I think we got Randy on the phone, your co founder you know, shortly thereafter, and you guys said, you got to watch this video, right.

And you sent me to the website to watch this, you know, background story video about the birth of Fresh Chile. And you know, we weren't yet working together. We were talking about working together, but I remember laying in bed with my wife showing, showing the video to my wife, Andrea, and I was just like, super pumped because like, there's something about, there's something about story and understanding the heart behind.

a business that changes everything from my perspective. I if you follow my content at all, I talk a lot about how business is more than money, right? Business and, and being a person is more than business, right? And, and in my humble opinion, I, I'm a Christian follower of Jesus and I believe that, business is this beautiful thing.

That has been gifted to us by God that can make the world a better place in a number of different ways and touch the lives of so many different stakeholders. Right? I think oftentimes we think about the owners and the employees and their lives being improved, but customers, partners, suppliers, you name it, there's other people on the list.

I'm not naming. The reason I'm saying all this is because I believe businesses that provide a durable businesses that withstand the test of time. And ultimately part of durability is, is profitability, right? I don't believe you can really have a long standing profitable business without having a solid story and a solid purpose behind why that, that business exists.

You in your content write a lot about story. And like you said, you have a background in story. You had a creative agency. Just walk me through a bit about like what story means to you and why you think that's so important to an e commerce brand and their marketing mix. 

[00:05:56] Chris Lang: Yeah. You know, I'll, I'll take it a step further too.

You know, I, I believe also You know, with kind of this rise of AI that, you know, we're going to be in a creator economy, right? So, you know, just beyond the DTC we all are searching for that purpose and, and that need to tell our story. And so, but yeah, it's just, You know, story's been something that's very important because, again, I was someone who grew up in extreme poverty, on Cherokee land in Oklahoma, and had to learn to read and write and speak Cherokee as a child, and the stories that were passed down, you know, from, you know, a nation We're really inspiring to me and I just, you know, that's why they wanted to teach us is to preserve that story.

So I think it was something that's been ingrained for me since my childhood. And, and it really did the main focus of, of everything that we do is we connect with each other on our stories. And so, you know, with the creative agency, that was kind of. Really what I focused on that was, you know, it's like, Hey, you had to tell the brand story with Oregon mountain.

It was about the story of our community. And then with Fresh Chile, you know, it, it it really was about Randy, Carol and Jen and their families, you know, his, his dad's, he's got Papa salsa, you know, is that it was a recipe that they would make every day. At home, every Sunday after church. It was, you know, that's where Papas also came from.

It was, and they would just bring people to, you know, they would invite people over to church. And I had actually been to one of those mills. You know, probably five or so years before Randy and I started because his son in law was like, Hey, just come over to our house after church. You don't have to bring anything.

And here's Randy. And you know, here's, here's his dad, you know, like they're, they're, this is just, it was inspiring to kind of be a part of that. And also when you live in New Mexico, I mean, in the Southwest hash chile is the flavor of the Southwest. And so it was an opportunity to kind of really. Take a deeper dive more so than just kind of the, the client level and really immerse ourselves and the story and continue the story because what's happened is a lot of players in this industry are traditional retail focused and we really are kind of the premier DTC brand online.

For this product. And so, and again, I mean, that's how you connect with people. That's how you build your cooking group up to over 30, 000 members. That's how you get subscribers and members is because people are connecting with them, but they, we do it in a way that is very conversational. So Randy does a lot of live videos.

I mean, he might be filming in the socks and boxers. And like, people just love it because it's so real authentic. And then him and I go out to the farm and you know, we show, we talk with the farmer one on one, Hey, this is where your food's coming from. This is what the conditions are like, this is why your pre orders haven't shipped yet.

And so people really like that authenticity. 

[00:09:02] Jon Blair: I love that. You know the last several episodes of this podcast, we've talked a lot about like getting into like the numbers and metrics and like, I think there's probably a place for that in our conversation today. But one thing that I think is missing in a lot of the conversation out there about profitable e commerce or digital advertising.

What is the messaging? Right? What is the storyline? Who are you talking to? What do they care about? How do you connect with them? Because in reality, the metrics are driven by what underlying fundamentals that are deeper than the metrics are just measuring an outcome. But where does it all start? How do you think about what your ad says?

How do you think about the the content whether it's video or still image or or How do you think about what kind of creative is in your ad? And then when you get driven to a landing page or or the home page, what's the story that's being told there? What's the imagery? What's the messaging? You're you're such a great person to talk about these underlying fundamentals with because at the end of the day Thank you You have a, you have a really deep focus on that in Fresh Chile and I can see that in your advertising.

I've gotten plenty of your advertising served up to me and I can definitely see that. And so what I want to talk a little bit about is before we get into talking about, you know, real kind of core and common e comm digital advertising metrics, let's talk about some of the best practices from your perspective of how to think through like.

What is the creative that you should consider using? How do you choose the right creative? How do you think about crafting a message? Talk me through some of that. 

[00:10:46] Chris Lang: Yeah, definitely. You know, I think,

I think you have to start with, are you really in love with the product that you're selling? I mean, I know that probably sounds so true, but it truly is. I mean, there's, there's a lot of people who kind of spin up these Shopify stores and, you know, think they can kind of, And I get it too. I mean, I probably started 10 Shopify stores.

But the reality of it, the ones that I, that have been successful are the ones that I truly believe in, right? I truly believe in the story that I'm telling and and the customers relate to that as well. So, you know, the process really kind of looks like, you know, us talking to our customers, going back to like, whether it's a creative ad, you know, Or whether it's a live video is that, you know, it's going to be Randy, maybe myself, Jenna, his daughter, and, and, you know, maybe the farmer, like, we're taking people like, there's not layers.

I think that I see a lot of focus on creative in this space, and everyone's trying to look at everyone's ad libraries and everyone's trying to look at, like. You know, all the latest hooks, all the latest UGC and like, I get that. I really do. But again, it's, you know, I mean, we're, again, we're not, we're, we're focused on kind of our story and connecting that story with people who also have had, you know, that, that also that story from this region as well.

And so, whether it's the emails that we're writing to our customers, a lot of them. You know actually we'll write Randy's emails full disclosure, but it is like, you know, it is like I'm talking to the customers and Randy always says, eat more chile. And we see, you know, use it as a signature. If you order from us, there's a little thank you note, you know from Randy and Carol to join our Facebook group and join 30, 000 other members who are in our.

Making recipes as well. There's also a handwritten postcard that gets sent out, you know, 30 days after purchase, you know, from Randy and Carol. So, you know, all these touch points are really important to kind of make sure that, that our story is being told, you know, from first purchase to post purchase.

And, you know, even as we start to segment out, you know, retargeting, that again, it's like, Hey, you know, that story, we bring you back with that story. And so I think it is kind of thinking through each of those touch points, but I do believe that, you know, is this, is this really a product a brand that you really believe in that you're, are you willing to be the face of potentially, which not every operator is comfortable with.

[00:13:28] Jon Blair: I love that. So the interesting thing is that like when you can get a customer or a prospect to connect with your story, right? In my mind, it makes it more likely that like one, they're going to convert hopefully on that first purchase, but two that they're going to come back again. Right. Because walk me through a little bit about just like what are some of the what are some of the components of the story or what are some of the creative that has been surprising that is actually performing really well for you guys?

Yeah, 

[00:14:07] Chris Lang: so, you know, creative wise is, okay, there's two factors here, okay? So number one is, is, is the creative just really taking people behind the scenes where there's the farm, we take them into our kitchen, we take them into our warehouse. We take them just kind of meeting different, you know, employees of Fresh Chile.

And so we really kind of focus is that everything is authentic and real and that we're real people. Because there is a hang up online that like, is this a scam? I mean, that is, that is a big I mean, there's even those kind of comments on our videos where we're talking to people, right? Because again, people just, there is this barrier with some customers like, can I really trust this?

And so we really try to overcome those objections by making sure that everything behind the scenes is real. And we don't really try to edit a lot either. Even on the video production side, I try to leave things very raw, very unedited. And that is very purposeful because we want people to see that. The second component is also type is brand positioning.

So we had a product go viral last year because their name is 505 and they're the largest hatch green chile business on the market. And But they're out of Denver, Colorado, so and the area code used to be 505 for all of New Mexico, but now it's two area codes. There's 575 here in southern Mexico and 505 and northern New Mexico.

So I had an idea a couple of years ago, and our general manager, Robert Purtle, come up with the recipe for 575 green and red chile. People really embrace that story of like, this is the authentic stuff. This is five, seven, five it's hash chile. Like, I mean, it's also been a rallying kind of cry for, for locals here.

So, you know, it's one thing to get people all over in America to buy your product, but it's, it's also more amazing when people are wearing like five, seven, five t shirts and they're, they're talking how five, seven, five, they're getting into arguments at, you know, at different checkpoints, you know, like five, seven, five is better.

No, you know? And so it's just like, and again, It's because we're a local for local families here living in the community. I mean, you can come talk to me at the farmer's market every Saturday. I'm here in my store. I'm happy to talk to you. Randy's going to be running around Fresh Chile gift shop too. So people interact with us and they know us.

And again, so I do think it's a component of that authentic authenticity, but also sometimes you, what, what can you do from a product development to make sure your brand stands out? Mhm. 

[00:16:46] Jon Blair: Yeah. Man, when you have raving fans that are fighting for your brand, there's probably not much of a better feeling for sure.

And you know, I mean, look, it's a crowded marketplace out there, right? Like the one of the big challenges I always say for DTC. Is that there's a low barrier to entry. So like on one hand, that's an advantage. Cause like you said, you could, you could start like 10 Shopify stores, but the disadvantage is your next door neighbor could start 10 Shopify stores.

And if they wanted, they could start 10 Shopify stores that are direct competitors to all of your 10 Shopify stores. So the low barrier to entry makes it easier to get started. But it means more competition. Now think about ad channels. Think about meta Google, any, you know, YouTube. Those also have a low barrier to entry as well.

Anyone can get an account set up and start advertising. So what role you already went through an example with some of your positioning from a product development and a product name standpoint with the 575 and the 505. But what other roles do you see crafting like a compelling brand story play into differentiating your brand in a crowded.

Low barrier to entry, like DTC space. 

[00:18:01] Chris Lang: Yeah, you know, I have a good example. We just had our website, you know, redesigned by audit and we're still in that implementation phase. But one thing, and they gave us a lot of valuable information as far as like the product display pages, really overcoming those objections, you know, with the different, so you got the product photo and then we have money back guarantee.

And so we really try to overcome on the product display pages, anything that a customer may, Hey, they get to the page and they're like, okay, can I trust this? Can I buy it? And it's actually, our conversion has actually gone up from like, it was around a three point, something we've been at a 5. 5 since those changes.

So that's been a huge, that helps definitely on our efficiency side, we're really kind of one thing that I did. That wasn't in the implementation. And I started doing this on our, on our Facebook guests too, is I was like, really the fundamental issue. I think when we're trying to acquire new customers as people like, what is hash chile?

So I just, I just, what is hash chile? Who is Fresh Chile and why are they becoming America's favorite salsa company? I 

[00:19:12] Jon Blair: love that. I saw that. I saw that on, I saw that on the homepage one day when 

[00:19:16] Chris Lang: I, when 

[00:19:17] Jon Blair: I log, when I 

[00:19:18] Chris Lang: went to it, Yeah. I mean, I don't think any like CRO expert would tell you to do this, but I mean, since I did that with optimizing the product display pages, I mean, conversion has been better because now people are going to our website and there's this big bold statement at the top of the homepage above like the banner, which is not what you see on Shopify stores.

And it's just like, it's overcoming like, Oh, and there's a video instead of a banner photo. There's a video that tells a story and it's about a 13 minute long Video, but it converts and it works because people are very interested. I think today in today's world, people just want something that's true.

They want something to believe in. I think we're all looking for that. And I believe, you know, just really, sometimes we try to be this going back to like, you know, kind of the creator video, you know, ad. You know, it's just, we, we, we try to overthink it instead of just being true to who we are. And that's what we try to focus on day in and day out.

It's like, no, we're, we're just going to keep pushing on and, and, and telling the story of who we are and what we're going through and what struggles we have and what, you know, successes we have. And, and people seem to really enjoy that. 

[00:20:36] Jon Blair: I really, really love that. It's funny because like there's this connection between the authenticity that you guys are trying to communicate about you as people and about you as a company, but then there's the authenticity of the product itself, right?

Like when you think about the 575 and the 505 and it's like, Hey, Hey, this company in Denver, they're kind of like, you know, they're kind of imposters, like they're, we're the real deal, right? Like, right. We're right there right by the farms in Hatch, New Mexico. Right. And so I love that. That's really cool.

So, you know what, I would say one thing that I struggle with at times as a creator as a content creator. And, and I think this runs parallel to challenges that e com brands have with their creative is like running dry on like. new potential creative that you can use, right? Like what are some things with your background and running a creative agency and then obviously running the creative at Fresh Chile?

Like I don't want to say hacks necessarily like hacks or tips or like when, when, when you, when you feel like you're running dry or some of your clients in the past who started running dry, like what are some of the exercises, tips, hacks for like, coming up with some new potential, you know, creative and content that can be used in, in the advertising mix.

[00:22:00] Chris Lang: Yeah. I mean, it comes down to planning, you know, everything that, you know, we do takes a level of planning. So again, on, on the brand side, kind of the, you know, at least a 30 day out, you know, and to kind of share that with the team, share that with customer service share that with her, you know, the rest of the team.

So they kind of know what's going on and, you know, You know, when it comes on the, on the personal side or just working with other clients is, you know, kind of that Sunday evening, Monday morning, you know, here's Monday, you know, through Saturday content and just kind of, you know, what's your differentiators, right?

What, what makes you different? And so, you know, from, from a brand, I'll say this from like a client side on the agency side, I look at, kind of the seer method. It's just basically S is for strategy, E is for engagement, A is for acquisition, R is for retention. You know, so kind of that seer method in just kind of every day, like, you know, Monday could be, you know, strategy.

And then, you know, Tuesday's engagement, you know, Wednesday's acquisition. And so you kind of just whatever everyone has their own parameter, you know, some people like the, you know, product promotion, people type of, you know, whatever method that you'd like to do, right. It's sort of like making sure that you can create a content calendar, kind of a, Monday through Saturday type of, you know, progress there.

But you know, for the brand, I know what we're doing for the year. And then I kind of like to share that 30 days out with our team, because if I share them what we're doing for the year, it's overwhelming to them for sure. Coming up with how many products. Yeah, it can be overwhelming. So I have to manage expectations there.

But if I do it 30 days out, then people are like, okay, cool. And that's a good cadence. You know, I feel like internally for us. And the 2, I mean, and for us on. You know, on a CPG side, we have a, we have like farming seasons, right? So I mean, you have planting. Yeah and you have harvesting and so apparel, you know, we revolve around collections this spring and this fall collections, you know, so again, everyone kind of knows their seasons and their business and what that looks like.

So kind of planning accordingly, but there is, I would say though, Just on the last bit of this, it's like you kind of have to walk away from your computer sometimes. I think just grabbing a pen and paper, pen and paper, find a quiet place, you know, wherever you can do just to get no distraction and just write it all down first.

That really helps you because you'll start doom scrolling on Twitter if you try to plan it out in front of your computer. 

[00:24:37] Jon Blair: Dude, that's so funny. And like more and more than I'm finding is in my own content creation for Free to Grow CFO and for my own personal brand. I'm actually starting to get to the point.

I don't know if I'm becoming like a crazy writer. And by the way, like, I'm no, like I'm, I'm no, like big name influencer or anything like that. But, I'm finding that I come up with my best ideas, not even with pen and paper in my hand. Like I have to walk outside and then, but have either a note in my.

You know somewhere where I could write it down really quickly in my phone or I have even started doing these morning walks There's an airport little Private airport 10 minute walk from my house like walking I'm sitting on the bench But having my little notebook with me and like for some reason When I'm out in nature 

[00:25:26] Chris Lang: and I 

[00:25:26] Jon Blair: have like a longer range visual perspective where I'm not looking at what's right in front of me, but I'm looking at what's around me, which when I'm in a room, even if I'm not in front of my computer, I'm like so zeroed in on what's around me.

Right. And I come up with my best ideas. Obviously I can't write while I'm walking, but I'm like, Oh, the topics like just start firing off in my brain. You know it's a weird thing. Like I'm also a musician. So I've been writing. music for 25 years. So like, I know something about being like kind of a, you know, in, in my own terms, like kind of like a crazy creator and like, you never know when the idea is going to come to you.

And it always comes in like very, on, it always comes in an environment or at a time when you least expect it. Right. But all that to say that like there is something to, the, the, the creative work right in, in advertising and marketing, it's not done in the same setting or the same mindset as like when you're working on other areas of your business, right?

It just, it just, it isn't, it's not the same as when you're sitting down in a spreadsheet and crunching metrics. It's, it is definitely a different mindset. But so one thing I want to, there's a few things you've been talking about that are making me think of a couple other areas of scaling and DTC brand profitably that I think you can provide some really solid advice on.

And the first one is outsourcing versus insourcing when it comes to the creative function within your DTC brand. And as a fractional CFO for DTC brands, this is something I get asked about all the time. Like what areas of my marketing team should I have in house DTC? Versus outsourced and there's something I learned when I was on the founding team of Guardian Bikes that we made a huge mistake we outsource the wrong parts of our marketing first and in in particular we outsourced the Honestly, like the creation of our core message Which 

[00:27:34] Chris Lang: right 

[00:27:34] Jon Blair: I realize in hindsight was a bad idea because why because we knew our customer We knew the problem that we solved.

We knew the mission that we were on as a company. The the agency didn't know that now. Certainly they can help us craft it, but the core of it haDTCome from us. So that, that's the example I'm setting the stage with. What are your opinions for, scaling DTC brand, how they should consider outsourcing versus insourcing on the creative side of their marketing function?

[00:28:10] Chris Lang: Yeah. You know, that's a great question. You know, I spent last week with Randy going through a spreadsheet and, and honestly, like going through and cutting a lot of like software apps, you know, maybe vendors, And really trying to kind of free up some marketing and because again, it can kind of get away from you if you're not careful.

Right. And so, you know, what our marketing team looks like at Fresh Chile is me. I to kind of handle everything in house. I handled the emails, I handled the meta ads to Google AdWords. You know, I handled kind of the video production, you know, if we're doing videos on the farm, I'm just doing calf cut, throw some captions on uploaded to YouTube.

I've had some help in the past, you know, some internal video. Editor design. You know, but kind of going forward, it, it's been me in the past and going forward, it's kind of me for now, you know, for this year as well, because we have to run efficiently and, and marketing, you're already spending so heavy on meta.

Mm-Hmm, that it's, it's, it's really hard. But again, I mean, I just have, I had the opportunity of, of being an agency owner, so I learned a lot of skills kind of beforehand. And kind of running my own brand previously, where again, I kind of look at it as. I could probably do better on my email. By hiring an outside agency, and I could probably do better on my Facebook ads, but it's just, it's a fine line of kind of that.

So seven figures, the 5 million to 10 million, you know, the, the 20 million, at what point do you kind of. Let go and, and, and kind of, you know, find those right partners. And I believe in having the right partners you know definitely, you know, on the CFO side, I mean, that's where Free to Grow is really important to us because again, it is a part of marketing.

I need to know what my efficiency is. I need to know what numbers I need to hit. And so when I, when I really think of our marketing, it's like, Hmm, I'd rather invest in a good CFO, and make sure that our bookkeeping, that our accounting, Numbers are accurate before I try to start scaling again and maybe trying to find vendors, that, you know, that, you know, maybe great vendors.

But again, we'll just continue to, you know not be efficient, you know, as we're kind of. Really looking forward to being in a position and the numbers, you know, just to be profitable. And so I think that's where, like, I know that wasn't really maybe the direction that, you know, you were heading with the question, but that that's true.

That's where I'm at today is if I can kind of shoulder, you know, those responsibilities I'm going to do that because, as you grow a business past seven figures, it's a numbers game. For sure. You got to know your numbers. 

[00:31:22] Jon Blair: Well, there's a couple of things you brought up there that I wanted to kind of like summarize for the audience.

One is when you're talking about outsourcing versus insourcing, whatever that function might be, you, you very clearly were talking about the internal strengths and competencies versus internal weaknesses, right? And like for you guys, you have a strength internally on the marketing front because of your background, right?

Not every brand has that. The, the ones that don't have that, they, they need to outsource to Their internal weaknesses, right? Right. Brought up an internal weakness that you guys did have, which was on the accounting and finance front. And so you chose to outsource that to Free to Grow CFO. And so like, just in terms of like advice for listeners, when you're thinking about outsourcing and insourcing a certain function or task or project, one of the many considerations is.

What are you strong at internally versus what you're weak at internally? And, and do you need to bring in some outsource help from the outside to help cover a weakness? The other thing is understanding your truly understanding your costs, the cost benefit of outsourcing versus insourcing. Right. And one thing you mentioned, Chris was like, Hey, yeah, at some point you are going to need to get some help on the marketing front.

It can't be all you. But you want to understand the costs and the profitability of the business first and really make sure you have like high fidelity and a clear understanding of what that is so that you can understand the implications and the impacts. on more help, right? And so you guys chose the sequence bringing on Free to Grow to help with accounting and finance.

So you could get that high fidelity and then based on that, make decisions downstream of what, what you bring, you know, in house or what you outsource to get you guys additional support as you continue to scale. I want to ask you specifically from your days of the creative agency, you know, if we've got someone listening to the show today, who's like, Hey, I'm, I'm considering a creative agency or maybe the creative function within my performance marketing agency, but it's it caught, it's going to cost me a few thousand dollars a month and I want to make sure I get the most out of them.

What are suggestions you have for what a brand comes to a creative agency and already has prepared to get the most out of the relationship with outsourcing creative? 

[00:33:52] Chris Lang: Yes, I think people do have to work with agencies because a lot of people don't know how to tell their story and, you know, or kind of like really explain their product and they really need, you know you know, very talented people to kind of help them, you know, with that process.

And so I would say. You know, kind of two things. One, if you're working with them, make sure that you get your story told. There's nothing like a spotlight video. You will not regret, have a spotlight video about your business, who you are, what you do how it started. I think that's sort of the number one asset.

Whenever you work with an agency is just like, Hey, let's, let's get this video film, let's, let's really tell our story. And then secondly, is like, you do need to kind of chop it up. And we do this all the time, 15 to 30 seconds, you know, you, you need to have some sizzle, you got to have some highlights, you got to like really show how your product works and, and it varies, you know fun 16th way and there's a time and place for that, you know, just like we were saying earlier, I mean, but make sure your stories first and then you, you will need those other assets for your, your creative.

[00:35:02] Jon Blair: What, when you were running a creative agency, what were some of the biggest roadblocks when you're working with a client and you're like, man, I know I can help them, but I'm getting blocked. Cause I'm. Not getting something that I need, right? Cause obviously it's a collaboration that the agency, I think one of the biggest issues I see, let's just say marketing agencies in general, and that could be any type of marketing agency.

The biggest issue that I see with earlier stage brands is thinking that an agency will be a silver bullet. You can bring them in and, and they will fix marketing for you. And in reality, yeah, they should help guide you on certain things, right? And they should be experts at executing and hopefully experts at some aspect of the strategy, but you have to collaborate with them.

It's your company, right? It's your product. It's your ideal customer. What are some of the big things that used to get blocked on because there just wasn't the right kind of collaboration or information that was coming from the brand? 

[00:35:58] Chris Lang: Yeah, definitely. Definitely. I think there's some, there's some core issues always when you're working with clients is they don't really listen sometimes.

I mean they, they, you know, you're coming, you're coming to them for kind of like this outside perspective and it's like. You know, they're, they just kind of have an idea of what they want instead of what they need. And, you know, I think that's something for brand owners is like, these people are very talented.

They work with some of these brands for a reason. They've had success. You obviously looked at their portfolio is, you know, you need to listen to them. I think that it's kind of a kind of step one, you know, I think step two is Understanding that good creative costs money, budgeting wise, like we all want to be efficient, but at the end of the day, you kind of get what you pay for and or what your budget allows for.

So kind of make sure you have the budget allocated in a way that you're going to get good results. And so those are kind of the 2. You know, biggest obstacles that, you know, we had, you know, while running an agency. And, you know, I have examples, you know, over and over of, you know, the client wanted to go this way.

We wanted to go this way. And finally, when we went that way, it had a lot of success, you know, but again, it's because as marketers, this is what we think about, like, this is what we study. This is what we live for. Like, you know, this is why people are on foreplay or inside ad libraries or, you know going to grocery stores and just walking the aisles and looking at, you know, labels we just live for.

We, we, we think about this deeply. It's not something where it's like, Oh, you don't know, like you're just no, we, We, we really tried to, you know, understand and study the market. And, and you know, and I think for me, that's, you know, making that jump to a Shopify brand owners that had a lot of conviction and what I thought would work and what wouldn't work.

And you know, and that's kind of why I'm in the position I'm in today is, is because I was able to double down on those convictions. 

[00:38:28] Jon Blair: I love that. I love that. So there's a couple of things that I've seen come up fairly frequently with Free to Grow CFO prospects and clients that I've talked to, which is like this challenge, this trade office.

Again, it's an outsourcing versus insourcing decision. Doing your own production and fulfillment versus outsourcing it. Fresh Chile does their own production and fulfillment in house. Walk me through some of the things that come to mind when I ask, like, what are the advantages and the drawbacks to production and fulfillment?

And fulfillment being owned in house for you guys. 

[00:39:12] Chris Lang: Yeah. The reason why we got into film fulfillment is because the company was starting to grow and the co packer couldn't keep up with this and would have to fire us or fire other clients. And so we had to make that decision to, you know, find a facility and really kind of build out a kitchen, a bottling line, a shipping department, warehousing racks.

And we did that, you know, and, it was a way for us to really control the quality. And I don't know if that necessarily would be the case for every brand. You know in apparel there's, there's two, three brands of t shirts that you buy. And that's really it. Like, there's no competitive advantage from a quality standpoint, for like 90 percent of, you know, t shirt sales.

Right. And so, yeah. But that's where it's like, we knew that we had to have the quality, the way that we wanteDTCreate a better product on the market meant that we had to do our own manufacturing. I mean, we go from farm, we roast it, you know we'll chop it and then we cook it and we bottle it, you know, all within 24 to 48 hours.

And so that's, again, that's where the name Fresh Chile comes from is very fresh. Fresh all natural product. That's a hundred percent certified by, you know, Ashley farmers. And so, you know, that was important for us now. What's great about that is that we are more nimble. We can come up with product development faster.

We can drop new products. We can keep it exciting. We can, we get a, you know, order from Albertsons or central market. We can kind of, you know, cook on demand. So there are like a lot of benefits of that. And then, you know, also the shipping is like, we kind of understand quality control there, you know, we, it took a lot of light trial and error, figuring out shipping and pull.

I mean, this is glass jars with, you know, food product in it. So, you know, breakage and very expensive lessons to learn that again, we were kind of learning on our own. So, It isn't a very expensive endeavor. I wouldn't say that it's necessarily for everyone. There is, you know, there is an issue where we do kind of control our own destiny.

And that's a good thing because we can kind of control our costs better. But again, it does make sense for some brands to work with the manufacturer to work with the 3PL. And they're basically like marketing agencies, right? Like they're, you know those brand owners are, you know, there's three to four of them, whereas our overhead is a lot higher.

So our, you know, our monthly overhead is higher as well. So we got to meet certain sales projections to make sure that we keep our kitchen going to keep our shipping going and other people inside of your business as well. So I would say that, you know, One of the biggest advantages is that nothing's stopping us, you know, from a, getting the 10 million on the production side.

Other than ourselves at the moment. And then the, you know, whereas, you know, if you're working on it with a manufacturer, you know, overseas or you're working with DPL, there are limitations where you might have to, you know, wait six months before you can scale. 

[00:42:30] Jon Blair: Yeah. So there's there's a concept that I've talked with you guys about a lot and that I've talked with.

Well, we as CFOs in the space have to talk about this with any one that is any brand that's considering or is, is already manufacturing in house. It's the concept of what's called operating leverage. Operating leverage is the fancy finance term for high fixed operating costs. And so when you're producing your own product and fulfilling your own product, because those operations are in sourced.

You have higher operating leverage or in simple terms, higher fixed monthly operating costs than the brand that outsources that to a three pound three PL and contract manufacturer. Now the downside or the drawback is as Chris mentioned, you have to hit a higher revenue number. to break even. But the advantage is once you pass your break even point, if there's capacity left in your operations, you start dropping a lot more profit of every dollar beyond your break even point straight to the bottom line.

Whereas a brand who has converted Their fulfillment and their manufacturing to a variable cost, a per unit cost for finished goods and for, you know, each unit shipped as they pass their breakeven point, they're still dropping the same number of dollars per order to the bottom line. So again, the, the, the disadvantage or the drawback.

Is you need to hit a higher revenue and contribution margin dollars to break even. But once you pass that break even point, if you have more capacity left in your manufacturing, your fulfillment operations, you can start becoming wildly profitable. So that's just a little like finance tidbit for anyone listening in and like thinking through.

Potentially that in source versus outsource decision. There's one other thing you've mentioned a couple times, Chris, that I want to touch on related to scaling a brand profitably. It's seasonality. You guys, like every, we work with about 25 brands. All of them have some component of seasonality.

There's only one or two. That don't have a ton of seasonality because they're more like they're like supplements. It doesn't matter what time of year it is. If you're a raving fan of that brand, you're buying them all the time. But besides that. Every other consumer brand we work with has some component of seasonality.

You guys have actually an extra layer of seasonality challenge because there's a seasonality on the production side that is quite accentuated. You know, there are some brands we work with, especially like apparel brands, they might manufacture in China. There's definitely a seasonality because of things like Chinese New Year, right?

And the country shuts down. So there's, there's seasonality to production, but you guys. You have a product that is the staple is Hatch chile. There's a harvest that happens at the same time every year. And to go along with the brand promise that you guys have of like, you know, this fresh authentic hatch chile salsa from the hatch, New Mexico region.

You guys have to crank through a lot of production all at one time. Walk me through just some of the challenges to profitability that you guys experience on the seasonal nature of the production side of your business. 

[00:45:49] Chris Lang: Right. So one reason why a company like us hasn't existed in this space is because of the seasonality.

You know, the market consideration for this is usually August and that's when all the grocery stores kind of bring out the roasters and they kind of start roasting for the public. And this is sort of happening now, you know, from Southern California all the way to Texas. So it was very regional, you know, throughout the Southwest.

And, you know, that's also been a big question that I've kind of like, how do we make this a year round business instead of, you know, sort of a August through December business? Because that's the thing, like you. You kind of crank it up around July, August. And then, you know, obviously with Q4, there's a lot of like gift giving and just, so it does really well for six months of the year.

So what we started to do is we, we started working on product development. We currently have about 27 different products. We'll end up, you know, past 30. And I don't know if anyone would really recommend doing this but it has worked for us because we've been able to come out with a 5. 75 lineup.

Where it, again, it is a more of a finished product with spices and seasonings and it's not raw chile. So we do our fresh products, you know, kind of in season where it's just kind of raw green chile, raw red chile. We have about a handful of those products that we have to do fresh. But we have barbecued, we got mustard, we got ketchup, we got cocktail sauce.

We have other, you know, pop is a mama salsa again those are products that can be done out of season and that we try to focus on January through July. And it's also giving our customers a way to, you know, make sure they have hash chile for lunch. Flavor, but, and their mustard or in a ketchup. And then where that recurring subscription or recurring membership is, you know, higher throughout the year.

And, and again, it's kind of a long play game. But it is something that. We have done intentional. And again, we kind of doing this, the small batch, and we actually have this new functionality that we're custom coding with the developer right now. Where when we do our pre orders for our small batches, they'll be able to pre order the kettle.

So kettle number one, kettle number two, kettle number three, and really kind of just show that, you know, we, we do focus on the quality, even if it's not in season it is a small batch quality that we. Are you know, making sure that the customer has the highest level of satisfaction 

[00:48:22] Jon Blair: and you're making me hungry and I keep thinking of that video of Randy with I think it's with a hamburger that he's like pouring pouring just like a big old thing of salsa on and just like eating it like that.

I'm getting hungry right now. I'm a huge salsa junkie. I mean, like, probably unhealthily. So but because of the things that I eat with the CEO with the salsa on top of, but man, yeah I love that, you know, so it's, it's interesting because again, going back to the beginning and middle of our conversation, You're talking about this authenticity and this connection to real people through and through, you just mentioned like the kettle, right?

Like you can get kettle one 

[00:49:07] Chris Lang: and 

[00:49:07] Jon Blair: kettle two. And like, I mean, it's just like it, there's something real here. And, and I will say this, like. This isn't a side, this has nothing to do with scaling a brand profitably, but it's, it's like a core belief of mine. The, unfortunately in the food world, especially here in the U S, but anywhere that's like you know, a first world country, food product development and manufacturing has become incredibly impersonal and it has become very much about cranking out low cost foods.

Right. That are high margin and that have like a high shelf life. And so what do we have is we have foods that are like have unnecessary amounts of salt and sugar and preservatives. And quite frankly, I know it's cause I have three little kids. I have a five year old, a three year old and an 18 month old, and they're all addicted to processed food.

And it's honestly. It's not something I cared much about when I was younger. I was raised on processed food, but as I've gotten older, I've done some reading on it. And like I realized now, now I don't think that large food manufacturers are evil. There are some people who live on that side of the world. I just think it's.

They've done that because that's what scales, right? Right. You have a General Mills or whoever. Those processes scale, right? Automated food production with long shelf life. It scales and it's profitable. Now we've got companies like Fresh Chile that are telling you what kettle Your product is made in and trying to make it very personal.

These are real people. These aren't like just these large food brands where your, your food is being made. Who knows where with what in it, because it's going to sit on the shelf for and still be okay once you buy it. And so I love that. I think there's this there's absolutely in this, in the food and Bev CPG world, there's this rise of like brands that actually stand for something and brands that like, don't just stand for something, but are like truly authentic and like the quality.

And the story behind it are, are it just as important, if not more important than the product itself. And so, this has been really, really cool. This conversation has been fascinating and I think it's going to be super helpful for so many of the the people listening before we kind of land the plane here, you know, I want to ask, I always like to end with a personal question.

Sometimes I ask someone about. You know what they're reading or listening to or they're loving. 

[00:51:40] Chris Lang: Yeah. 

[00:51:40] Jon Blair: I'm going to ask you about your faith because you and I are both you know, men of Christian faith. And I was on a podcast several months back and a guy asked me at the end, totally caught me off guard.

I don't even know if he's a guy of faith. He just said, Hey man, you're, you're, you're a man of faith. I know that. How does that play into your business life? And I was kind of like, Whoa, He didn't tell me he was going to ask that, but it's actually my favorite question that I've ever gotten being on someone else's podcast.

So I'm going to ask it to you. You're a man of Christian faith. How does that play into your daily life? And how does that bleed into your life as a business owner? 

[00:52:19] Chris Lang: Yeah, it's, it's number one. You know, I kind of look at life as five areas, faith, family. Fitness, finances and focus and faith is kind of the constant driver of all of it.

I'm very fortunate to have a partner Randy, who is a man of faith. Our gender manager is a man of faith, Malachi, who runs our inventories, is a believer. We have so many believers in our organization. We start our meetings with prayer. We come to God with the challenges that we're, you know, facing with prayer.

And you know, Randy's a big part of that. You know leading, you know, and believing and it's inspired me. I think too, like can't get it twisted. Like what we do is very hard. Like we, we, we carry a lot on our shoulders and. I think kind of the biggest, you know, test that I'm constantly having to face is trusting in God and trusting that it's, you know, that we're going to make it to season.

We're going to make it to next season, that we're finding the right people to kind of help us understand how to run our business, that, you know, it could be as simple that we get enough water for the season that, you know, we had a record level of heat last year. You know, which kind of, you know, shortened our season and we haDTCancel some pre orders because of it.

And so, you know, faith is, is, is who we are and we don't try to hide it. We actually, I'll share a story with you. Several years ago we had a, we had a big company look to acquire us. Now, you know, it would have been a seven figure Payday with stock options. And I was on the phone with Randy and them and they're like, well, we have a couple of conditions.

And this is specifically for Randy at the time, but you can't say anything political or religious over the next five years on your social media. And we both walked away and Randy gave his reasons. And when it came to me, I was like, you know, I believe in free speech in America and you know, we are men of faith and we're going to thank the Lord, you know, and what we do.

So I know a lot of people will say you take that money every time. And so we didn't we have, we know that God has something else in store for us. And so we're, we're thankful and grateful. 

[00:55:05] Jon Blair: I love that. You know what? Simply said from my perspective, Fresh Chile, a brand. And a company full of people that mean something and stand for something.

Through and through all aspects of the product and your guiding principles as people and as a business. So I love that. Before we close down here, where can people find more info about you? Cause I think you have some great content. Where can more people find where can more people find info on you and on Fresh Chile?

[00:55:38] Chris Lang: Yeah, all the social media handles for Fresh Chile or at the Fresh Chile Co. And then for me on Twitter, it's that's Chris lane create. And on LinkedIn, it's Chris lane brands. And again, I just try to take people behind the scenes daily of what's going on. I share our numbers, good and bad today will not be a great, but it'll be an honest take of what was really going on and this in the last seven days.

[00:56:05] Jon Blair: Awesome. Well, Chris, I really appreciate it. Appreciate you taking us behind the scenes of your story, the story of Fresh Chile. You know, for everyone listening, look, we didn't talk about a bunch of metrics and stuff today related to scaling a profit focused DTC brand, but let's be honest with ourselves here.

The messaging, what your business stands for, your brand story. If you do that, well, It is one of the components that will help improve the metrics and help drive profitability. You need to have a solid story. You need to know what your brand stands for. You need to know who your customer is and you need to know how to connect with them with compelling creative.

So that's all for, for this week. I hope this was helpful. If you want more helpful tips on scaling a DTC brand, follow me, DTC Blair on LinkedIn. And if you're interested in learning more about how Free to Grow can help your brand scale alongside healthy profit. Cashflow and confident decision making.

Check us out at freetogrowcfo.com. Until next time, scale on.

Scaling DTC Profits by Optimizing Contribution Margin

Episode Summary

In this enlightening episode of the Free to Grow CFO podcast, join host Jon Blair, as he dives deep into the world of scaling Direct to Consumer (DTC) brands with profitability at the forefront. Our special guest, Thomas Gleeson, co-founder of StoreHero, shares invaluable insights on achieving marketing efficiency, profitability, and positive cash flow. Discover Thomas' personal journey that led to his co-founding StoreHero, a revolutionary product helping brands pinpoint their successes and pitfalls in ad spending. From discussing the landscape of e-commerce and targeted marketing strategies to exploring the significance of contribution margin, this episode is packed with essential knowledge for anyone looking to scale their DTC brand sustainably. Tune in to gain a comprehensive understanding of how StoreHero is making a significant impact in the e-commerce world and how you can apply these insights to your own brand.

Meet Thomas Gleeson

Thomas Gleeson is a co-founder at StoreHero! StoreHero is a cutting-edge tool for ecommerce brands and agencies to combine their ecommerce, marketing and finance data to cut out the noise and focus on what really matters - PROFIT!

Episode Transcript

00:00 Welcome and Introduction to Thomas Gleeson

02:51 The Journey to StoreHero: Thomas's Background

05:34 The Evolution of E-commerce and Marketing Efficiency

15:11 Understanding Contribution Margin in E-commerce

22:17 The Importance of Aligning Marketing and Finance

27:11 Exploring Dynamic Marketing Strategies

27:35 Case Study: Impact of Pricing and Ad Spend on Profitability

33:38 Maximizing Profit: A Deep Dive into MER and ROAS

44:52 Leveraging StoreHero for E-commerce Profitability

52:15 Final Thoughts and Recommendations

[00:00:00] Jon Blair: All right. Hey everyone. Welcome back to the Free to Grow CFO podcast, where we talk about all things scaling a DTC brand with a profit focused mindset. I'm your host, Jon Blair, founder of Free to Grow CFO. And for those of you who don't know, Free to Grow is an accounting and finance firm that works exclusively with growing profit focused DTC brands.

And what we do is we provide bookkeeping and fractional CFO services that help growing brands scale alongside healthy profit and cashflow. Today, I'm super excited to be chatting with Thomas Gleeson, co founder of StoreHero. Thomas, thanks for joining me, man. 

[00:00:38] Thomas Gleeson: Hi, Jon. Uh, thanks very much for having me on.

Uh, really, really looking forward to getting into it. 

[00:00:43] Jon Blair: Yeah, it's, uh, it's, uh, I think the last time we were chatting on a video call was me on your podcast, and we were actually in the same building, but, uh, in different rooms. I was in Ireland, um, what was that, about two months ago? And, um, yeah, that was a really good time.

I, I do want to, I've been talking to my wife a lot about coming back, um, on a vacation without the kids, um, so that we can actually see the rest of Ireland and not just Dublin. I was told by you and many others there's a lot that we didn't get a chance to see on that trip. 

[00:01:16] Thomas Gleeson: There's way more Guinness in the rest of the country as well, Jon.

[00:01:21] Jon Blair: Love it. Love it. But, uh, so yeah, look, today we're going to continue the conversation we've been having for the last few weeks where we're talking about this balance of marketing efficiency, profitability, and cash flow as you scale. Um, as I mentioned before, our fractional CFO firm, all we work with is scaling DTC brands that are profit focused.

We're not working with venture backed startups that are pre product market fit. We're talking about brands that are scaling a capital intensive business, right? Because it's inventory based and needing to do so in a self sufficient manner, which means what? Profitability and what's one of the biggest components of profitability for a scaling DTC brand.

It's marketing efficiency and then on, on the heels of that profitability equation, we need to be looking at cash flow as well. Um, I've got Thomas on today because he's the founder, uh, co founder of a very interesting, um, product, SaaS tool called Store Hero that really helps brands focus in on where they're winning and losing the battle.

for listening. on the, uh, profitable, uh, ad spend front and really just like profitable scaling front. And so, um, because of that, Tom, Thomas has a really interesting personal background that led up to his time at Store Hero, but Store Hero itself is doing some really, really powerful things to help brands scale alongside healthy profits.

So I'm really excited to dive into this topic. Um, with, uh, with Thomas's perspective. So Thomas, before we get into talking about store hero and some of the things that you and I are both seeing out in the marketplace, um, as it relates to brands trying to scale profitably, tell me a little bit about your background and your journey that led you to starting store hero.

Because I think there's just a lot of very relevant information or there's a lot of, there's a lot of relevant history. In your journey that positioned you well to come up with this idea for store hero and, and, and ultimately co found this SaaS product. 

[00:03:23] Thomas Gleeson: Brilliant. No, absolutely. And I mean, I think to your point there, it's.

Personally, for me, it's been a very lived problem. Um, I grew up with it in a house with e commerce at home. Um, my mother's had an e commerce business since 2004. So, I mean, you're going back to 2004 e commerce. We all think of e commerce today and it's very, you know, it's part of our nature. You, you, you jump on your phone, you buy an app and you buy it, you buy a product.

It lands in your door a couple of days later. You don't really think about it too much. If you go back to 2004, e commerce is very much in its infancy. You have to kind of convince people it wasn't a scam. Um, so you had all of this, all of these challenges that we don't really think about today, you know?

Um, so our, our family business would have been personalized gifts, so baby gifts, wedding gifts, Christmas gifts. Um, we probably saw that business grow over a long time. So we're nearly 20 years old now at this stage, which is kind of hard to even think about. Um, so. Um, we would have seen, first of all, our business was kind of built on SEO.

So we didn't run any paid ads until probably 2016, 17. Um, I then got the job of trying to figure out how to run Facebook and Google ads around that time. And my parents, I suppose, had seen that, you know, they got the business to a certain scale without ever spending on ads. So there was definitely a big reluctance to spend on ads because this is something that we kind of had perceived that we got for free for a long time.

Um, now, obviously, that's a terrible way to look at it. You should look at your, your, your marketing as an investment rather than a cost to the business. But that was kind of very much ingrained. And anytime I was spending money, then I need to be a clear ROI on the spend that was coming back to us. And to be honest, Jon, I was probably figuring out and mapping out contribution margin on a spreadsheet before I actually even knew the name for it.

Um, so that was the business that that's my family business at home. Um, I would have had a couple of e commerce businesses myself, I think two or three. Um, over the years, and then I suppose I went to work at Shopify in July, I think of 2019, um, which was an incredible experience. I think, I think I was six to eight months in the door before, uh, before COVID hit.

So, um, I mean, yeah, it was crazy. It was a crazy, crazy time, but such a massive learning curve for myself. 

[00:05:33] Jon Blair: That's really interesting. So you come from a family that had an e commerce store, definitely in the early days, the heyday of. of e commerce and and funny enough me having come out of the Brand side of the e commerce world on the founding team of guardian bikes.

We Launched I believe in 2016 on our shopify store 2016 to me compared to today feels like the old school days of E commerce. In fact, there was a lot more working with Uh, lower funnel activities like SEO and Google. There was actually white space with Google pay per click advertising. You could still get into a product category and be like, no one else is spending on Google.

That's pretty hard to find today. I don't want to say it's impossible, but it's pretty hard to find today, right? Um, but so you come from a family. That is, uh, has an e commerce business. You guys transitioned from this kind of lower funnel, like just capturing existing demand or existing search for, you know, uh, search intent for products that you guys offer to actually paid advertising, and then you go work at Shopify and arguably.

The one of the most incredible times you could possibly be at Shopify when there's an e commerce boom because of COVID, right? So from those two experiences, walk me through how you met your co founder Karl and ultimately why you guys landed on, Hey, we've got to start store hero. 

[00:07:08] Thomas Gleeson: Sure, I mean, so I started running ads around 2016 17, um, we were actually on a platform called Volusion, pre Shopify.

Um, and it was really actually hard because we had the Facebook pixel in there, but none of our conversion value from the product prices and stuff like that was pulling into Facebook ads. So I could see the cost of a purchase, but I actually had no even idea of ROAS figures at that time because, you know.

That data wasn't being put into the Facebook ads manager. And so you couldn't actually see the conversion value. So we moved over to Shopify. I think in, uh, around the same time, I actually started working there. So my mother never had a cue for support because I was the support. Um, but what I quickly started seeing was that, uh, You know, obviously your, your experience from growing up in your own business, uh, family business, then having run your own, it's very insular.

You, you, you know what, you know, and all of a sudden I started off in Shopify in customer support and all of a sudden you're talking to hundreds, if not thousands of different businesses on a, on a, on a couple of monthly basis. And I quickly started seeing, I mean, it was such an amazing learning curve.

There was so many different businesses doing so many different things. Um, and I realized that I had so much to learn. Um, So what I kind of started doing for my parents was on a Monday evening, basically trying to create a spreadsheet to map out all of the core Shopify metrics. So, you know, sales, new customer, traffic, conversion rates, so on and so forth.

Then I decided I need to bring in Google ads, metrics, Facebook ads, Klaviyo metrics, GA4 metrics, well, UA at the time. Um, and then my, my, my father is an accountant and, you know, accountants, not like you, Jon, but most accountants by their nature can be, uh, apprehensive of marketing spend and it's true effectiveness.

So he would make me bring in all of the core costs, um, not just product costs, obviously, but, you know, staff costs, uh, software fees, uh, along with the rest of it to make sure that when I was kind of bringing this spreadsheet together on a weekly basis, that it was actually a true reflection of the actual profit that we were making.

Um, so yeah, I mean, why do I need to bring in the cost, the profit piece. I think, and I think a lot of, you probably see this yourself, but I think a lot of brands, you can get hung up on purely looking at ROAS, and I mean, ROAS and Google is great, ROAS and Facebook is great, but, you know, ROAS is a, it's, it's fine, but it's, it's really a derivative of the, uh, the attribution tool or the attribution software model or the window, whatever you want to call it, that's being used in those, those platforms.

And it's, yes, it's a great indicator in terms of is Facebook working, is Google working, but really. I mean, if you're trying to link the finance and marketing function of the business, what you really need to understand is the impact of your marketing spend on the profitability. And what I was doing for years without again, really, really knowing the name for it was trying to get your contribution margin, which in my opinion, you know, as we kind of move towards a more cookie less world and as attribution probably gets murkier and murkier.

You know, that's the North Star metric. Every business needs to follow on and work on. So in terms of, I suppose, where did Karla come into the picture and how do we join forces to make store hero during my time at Shopify? I was doing my business degree in the evenings. And then final year, I had to do a business plan project and I was like, okay, well, this spreadsheet that I've been working on for a number of years, let's try and see if I can just work on my, my project and something I'm actually interested in.

Um, so I spent probably 9, 10 months working on that. And this is just really random because Karl and I were connected on LinkedIn, but we didn't really know each other that well. Um, I was just about to submit my project and Karl messaged me out of the blue and asked me to check out this project that he had started working on.

And my face dropped because he presented about 85, 90 percent of what I had just done my whole project and actually spent a couple of years working on. And I was initially sitting there like, has, has my lecturers tipped this guy off or how has this landed on my lap? Um, because, you know, you hear about founders and the journey they go on to try and find a co founder, and it can be quite lengthy and really, really difficult.

And the idea of starting a software business was always something I was very, very interested in. And all of a sudden, you know, it kind of had landed on my plate, to be honest, to a certain extent. We spent the next couple of months chatting and we realized it was a great fit. And then we kind of joined forces officially probably around October of 2022.

And I left Shopify a month later. Um, and the rest is history, I suppose. 

[00:11:18] Jon Blair: It's so funny. We were talking about this over dinner in Ireland. We were like swapping co founder stories, like how, how we found our co founders and my co founder, Jeff Lowenstein, we have a, we have a similar story. Um, as you guys, in terms of like, I, I, you know, I had been scaling Free to Grow CFO, um, as the only CFO on the team.

Um, but having built out some back office support and accounting function, I really wanted to partner with someone, but for us, the guiding principles that, um, really, um, You know, set the direction for our business are neaR & Dear to my heart. And there's only so many people out there who are going to align with our core values and our purpose and reason for existing and meeting Jeff really kind of fell into my lap just through a introduction of a friend of a friend.

And he was looking to start his own e com fractional CFO shop. And, um, really was just kind of picking my brain on what has, what worked and what didn't work. And I realized here's a guy who had a complimentary skill set to me, not exactly the same, right? Cause like I always say in business to people who are exactly the same.

Means one of them is useless, right? He like, he very much complimented my weaknesses and vice versa. And, um, and very much aligned with our core values and guiding principles, which I, I believe there's a, is very, very hard to find. Um, and I was like, wow. Here's a, I convinced him, I pitched him on joining forces and let's, let's co found the next generation or, um, you know, next phase of Free to Grow CFO instead of you going and starting your own firm.

And that was the birth of our co founder story. And like, I would say that's, we're probably the exception. Not the rule. I think there's a lot more for, for as many co founder stories as there are like ours. There's probably four of just like real horrendous co founder stories that don't end well. And so we're lucky in that regard.

But I think another thing that's interesting for the audience to understand about you and your co founder Karl. Karl comes out of the agency world, right? And so him having, um, let, was he, did he own an agency? Was that part of the journey 

[00:13:34] Thomas Gleeson: and I just kind of what you said there is really in line with us as well.

We, we definitely have very, very different skill sets. Um, but we both had like. Both are like very relevant, but very different experiences and background. Like mine was at Shopify and on the brand side, whereas just as you've alluded to there, Karl's background is on, he had an agency for a big number of years.

So kind of full service agency. Um, and he had actually started building out, you know, A mix of super metrics and funnel into a Google data studio reports for a lot of his clients. Um, and, you know, they were really, really good, but often they're not very nice looking and the connectors can break and you spend a lot of your time actually fixing the data and fixing the connectors that are broken instead of actually logging into a platform and actually trying to Get a sense of, you know, making decisions on the data instead of actually fixing the dashboard to make sure the data is actually there.

So, Karl's experience was largely from the agency side. It works with loads and loads of really big Irish clients here and some other ones in Europe as well. And we'll probably run into a lot of the same challenges I ran into from the other angle where a lot of clients were asking for, you know, this is fine.

The ROAS reporting is fantastic, but really, can you tell me how much profit I've generated after this marketing spend and. You know, when we joined forces and we kind of started chatting around this, it was a bit of a, one of these moments, you're like, how does this not exist? Like, you know, contribution margin is a term.

Was definitely in its infancy, by the way. I still think it's very much in its infancy for the e commerce industry, but even going back 18 months ago, it wasn't as much of a talked about term as it is today. So we kind of joined forces and said, this was something that the market really needed. Um, and thankfully we, I think we backed the right horse.

[00:15:14] Jon Blair: It's funny because I originally am an accountant before becoming a brand operator and a CFO, right? And so contribution margin is, is, it's an accounting term, really. Um, I have a certification in the States called the CMA, which is Certified Management Accountant. It's, it's kind of, This is a poor description, but this is what it's known as.

It's kind of the cost accounting equivalent of a CPA in the states, right? And um, contribution margin is a management accounting term that's been around for a really long time. And you normally only heard about it in a managerial accounting Um, classroom setting or a managerial accounting, um, textbook.

And so what's funny is that I was talking about contribution margin much earlier in my career in different settings. And most founders looked at me like I was crazy. Like what, what I, I, I don't care about this, right? It's, it's gross margin. It's EBITDA. Um, even just the gap way of looking at a P&L, which is like breaking out operating costs into SG and a selling costs R & D.

And, um, it's interesting because at guardian bikes, what, seven, eight years ago, I We were talking about contribution margin, but their CEO and a business school, um, friend of mine, Brian Riley, he originally had a finance background. So like, even though he was the CEO and he was kind of the marketing and product visionary, he had a finance background.

So contribution margin was a term. That made a lot of sense to him that he knew deeply so we were talking about it eight years ago But I think you're right that it this old term that's always been there in the accounting world is now becoming mainstream because the reality is Understanding reorienting the profit equation, right?

I actually just wrote a post about this today on linkedin Profit is not revenue minus expenses Profit is contribution margin dollars minus fixed costs That sounds possibly like just semantics. But it's not just semantics. The underlying concepts within contribution margin dollars minus fixed overhead is a much different way to look at your business and your profitability equation and understanding what those things mean is key.

And so, um, One thing that I want to chat about here a little bit is like, what conversations are you and Karl out there having? Cause you guys have generate, you guys have created store hero, which is a piece of software that amongst other things helps brands, uh, uh, calculate and analyze their order level and skew level, um, contribution margin.

Right. Um, so you guys are on the forefront of helping brands. Calculate contribution margin. You're helping them bring in the data sources into your platform. That, that, uh, that ultimately drive those calculations and drive that reporting. In doing that day to day, what conversations are you out there having with founders over and over again?

What are you seeing about, about founders ability to like internalize? The contribution margin concept. 

[00:18:38] Thomas Gleeson: Yeah, I mean, really, really good point. It's, it's a lot of education still on what it actually means. Um, people can understand it, but you can see the moment the light bulb goes off and they actually realize, you know, what this actually means.

And again, we're not talking anything revolutionary here, and it definitely is a term that's becoming more and more mainstream in e commerce. Um, But there still is a huge gap in understanding industry wide around what contribution margin actually is, what it stands for, and how you can really utilize it to.

Almost reorientate how exactly you look at your marketing for your e commerce business and how you, again, look at contribution margin minus OPEX equals EBITDA because there's still such a massive gap in education between just in the industry as a whole. And in terms of, I suppose, conversations that we're typically having with brands, they're moving a lot of agencies.

The good agencies are moving the reporting way more towards contribution margin. , 

[00:19:33] Jon Blair: Some agencies, the way they're structured, the way their strategies are structured, they are not inherently maximizing contribution margin dollars.

And, and to be clear, not a lot of them aren't doing it on purpose. They're not seeking to minimize contribution margin dollars, right? It's just that their, their playbook doesn't have alignment between the activities they're doing and driving contribution margin dollars. And so if that gets exposed, it really exposes.

The underlying issues with their whole playbook. And I'm, I'm actually seeing that more and more like agencies are embracing it or they're like, please stay away. I don't want your help showing this to my client. Are you seeing the same thing? It sounds like, 

[00:20:23] Thomas Gleeson: Oh, so much, so much. Um, to be honest, it's more validation for us that we're on the right track.

That that's the kind of attitude good and bad agencies have towards us. The good agencies that really want it because it really shows off the work that they are doing. Um, again, what we're talking about here is nothing revolutionary. Again, we've said that a couple of times and it's, I think it's worth going back to understanding how is e commerce function for so long.

Without this term, which sounds so blatantly obvious to me and you, how does this never come to the forefront for a lot of brands or how has e commerce matured to a point where there's millions of Shopify stores out there? And this hasn't been the fulcrum in which businesses spin on to a certain extent.

And I think it goes back to, you know, years of cheap CAC and ROAS on Facebook and Google. You know, if your margins were so good from your, your advertising spends on those platforms, you really didn't need to understand the boring parts of your business. Like, you know, margins and costs and that whole thing, you know, that all took care of itself.

As long as you were spending on Meta and Google and the return on the advertising spend was so good. And let's face it, it was for so long. You know, the rest of the business just took care of itself. You could have had a really, really profitable business out there without really understanding the intricacies of it all, but I think, you know, in the last probably two years, as you know, the, the, the post COVID boom has kind of subsided and iOS 14 has come in and the rest of it, those ad costs have gone incredibly much more expensive.

There's way more competition out there. And now more than ever, I think people. You know, for years you could have operated an e commerce business with marketing, knocking it out of the park, finance, doing a really good job, but those two functions in a business, not really understanding how each other works.

Um, but I think to grow a successful e commerce business today, that intersection between those two functions is where the rest of the business needs to build from. Because if your marketing team don't understand. Deeply, the unit economics, or your agency don't understand the unit economics of your business and your finance team are building out, you know, forecasts or reports for the year.

And they don't understand the marketing lingo to a certain extent. You have two functions who need to lean on each other, really not understanding each other. And if that's the way your business is going to try and operate, you know, that's a really, really difficult to, it's a really difficult environment to operate in when those ad costs.

If you look at an e commerce business, the gas that you have to accelerate is your, your ad spend. It's your marketing budget, but if you're not fully clued in or the business isn't fully clued in on the impact of that marketing spend on the profitability that you're trying to generate, it's like operating your business blindfolded and that that's never a good idea.

[00:23:00] Jon Blair: Yeah. So there's something I want to bring into this conversation for us to chat about that you and you and I actually haven't talked about this before specifically. But it's something I'm starting. It's a pattern I'm starting to see, which is that, um, and it's, it's built around this concept of monthly budgets and targets to give to an ad buyer, give to your agency as fractional CFOs that work exclusively with scaling DTC brands.

That's one of the questions we get the most often. I'd say the two questions we get the most often, like one, can I buy this much inventory and two. Um, what's the budget, what's the ad spend budget and the, uh, uh, marketing efficiency target for our agency this month. And here's the thing I'm starting to form this opinion and it's something that I'm working with my team on.

Um, and we're kind of testing on a few clients, but we used to just give guidance on an ad spend budget and, uh, marketing efficiency and MER marketing, marketing efficiency ratio, um, target for. The month and I'm starting to realize that that by itself is very unhelpful. And here's why I actually do believe that you should give guidance, right?

We should have a target because if we don't have a target for how much we want to spend, your ad buyer can't reverse engineer. How much they're going to spend on a daily basis and what the stair steps of of ad spend increases are going to look like if you don't give them a target they're just going to be running blind there but if you give them a static target on ad spend and M.

E. R. here's the problem what's rule number one of planning of like forecasting M. E. R. and ad spend and M. E. R. Same thing as rule number one for every other forecast. You will not hit exactly those numbers. So when you give that to an ad buyer who this day and age ad buyers are freaked out, I talk to them all the time.

They're so freaked out that they're going to get to the end of the month and they're going to get chewed out by the brand because they totally screwed something up and they ended up driving. Not as much profitability as everyone was hoping. And so, you give them an ad, let's just say you give an ad buyer 100, 000 ad spend target for the month, and then you give them a 3 MER target.

Well, if they start scaling spend, and they're on track to spend 100k, but their MER is coming in at 2. 5 instead of 3, they're actually not sure what to do. Like, they can go ahead and retreat and pull ad spend back until they see the MER rising back up to three, but they don't actually know the impact that that's having on the bottom line.

They're just blindly, pretty much blindly, following an MER target of three, right? And so what I've started to realize is that what we need to do is As e com focused fractional CFOs is we need to give our brands actually kind of like a scenario chart where it's like, Hey, look, our goal is to hit a three MER at a hundred K ad spend.

But if you spend 125K in ad spend, here's the new MER that produces the same contribution margin dollars as our target. Or if you only spend 80, 000 in ad spend, here's the new MER target that generates the same contribution margin dollars as a 100K and a 3K. And what that does is it empowers an ad buyer to go to that chart and go, you know what, I'm pacing towards this one.

And actually, um, I actually can, I can beat this MER. Um, and so I'm spending more, my MER is lower than three, but I can see on this chart, I'm going to produce more contribution margin dollars so that ad buyer can keep, keep executing with a lot of confidence. And so we're trying to think through how we kind of build out these look up kind of scenarios, right?

So that an ad buyer can have a direction set at the beginning of the month, but have something intuitive to use. What, what is your opinion on that kind of a strategy versus just a static MER and ad spend target? 

[00:27:10] Thomas Gleeson: I think, I think it makes a lot of sense. I think it makes an awful lot of sense. Even one example I would give, I spoke to, um, an eight figure brand at the end of January, um, and they made some pricing changes.

Um, they increased, I think, product prices by about 20, 25 percent in, 20, 25 percent in just the very, very start of the year. And they didn't really move the MER target, um, so I think they spent 170k on spend in January, which was up 78%. And I think the contribution margin was up 110 percent on a 78 percent increase in spend.

So I was kind of looking at this going like, you know, your, your contribution margin dollars. Are actually rising on a percentage basis faster than your ad spend to which I was looking at this. I'm like, I rarely see that kind of scenarios. Like, this is a huge opportunity you're missing. If you need to make sure this when you're talking about all the kind of contribution margin conversations that you need to be very, very careful.

Diligent to make sure that the business actually has the cash on hand to make that happen, because we've ran into that a couple of times as well, or they mightn't have, but, you know, they made that bigger swing because they were fixed on this 3 MBR target. I think in February, they increased spend from, I think it was 169 to, I think it was 270.

So pretty, pretty substantial increase based on the conversation that we had at the end of January. And month over month from February, uh, from January to February contribution, margin rose by, I think, Oh, I think it was 70%. Um, so, you know, did the NER actually dropped by about 15%, 15 to 20%. So substantially more at a reduced MER.

And I think to your point there, if they had had a chart like that, where, you know, you can drop MER to a certain extent, um, in, in line with increased levels of spend, that's probably what they were missing and that didn't give them. You know, they actually, based on the year targets that they had hit for January, they had had a three MER and everything was going well.

They were actually planning to spend the exact same amount in February because they had hit their target. Now, what we saw was we did a substantial increase in spend, reduced MER below what they had initially anticipated, but actually the profitability of the business was much better off in February than in January, even though they were below target.

So I think the matrix that you've kind of outlined there in terms of. Understanding that and giving that to media buyers is incredibly valuable. What I would probably ask you is like, do you think most brands have the wherewithal or the The tools in front of them to actually create what that, that, that plan or that outlook actually looks like.

Obviously a lot of the brands you're working with as a fraction of CFO, we'll have that level of guidance, but I actually, I don't think most brands are at that level, unfortunately. 

[00:29:59] Jon Blair: No, they, they definitely, they, they aren't. And that's why I'm realizing that as CFOs for. Scaling Econ Brands, we need to provide that intelligence and I want to go back to, I want to connect this back to what you were saying before about like the need for finance and marketing to be communicating and working together.

Is that like, um, your finance team needs to understand marketing at a high level. They need to build to understand the jargon and the acronyms and understand mathematically what they mean. And how they tie back to the financials and likewise for the marketing team, right? They need to understand, um, things like MER and contribution margin and how they tie to the financials, but at a basic level, they need to be really good at marketing.

Right? And so, what I've found is like, hey, yeah, in a perfect world, you'd get your marketing team, like, super schooled up on finance and they would be super badass because, uh, they actually really get all this stuff and can internalize it and they can create their own spreadsheets, but the reality is, in practice, what are we asking these marketers to do?

We're asking them to work outside of their job description. And so, really, in practice, where I'm starting to see, Uh, finance's ability to, uh, partner with marketing in the, in the scaling and e com brand context is Let's provide them with these tools like that lookup chart, right? Where they don't have to necessarily understand how we did the math to come up with those numbers But they need to understand they should understand that contribution margin dollar maximization is bottom line profit maximization, right?

And that it's okay for them to spend more at a lower efficiency. If per that chart, they're going to drive more contribution margin dollars. And if they do that, if they follow that chart and those contribution margin dollars don't come to fruition. In reality, when the books get closed, that's on the finance team.

Right to figure out where they went wrong in the math. And so I think I think Let's put it this way. What I'm realizing is it's really easy to talk about this ideal scenario this utopia Where marketing and finance work together and they all totally understand what the other one is doing That doesn't, that doesn't make any sense in practice, I'm realizing.

They need to have conceptual understanding crossover so that they can communicate, but they should be providing tools to one another, right, to make it easier for them to draw off of each other's expertise. But, like, to, to your point again, most Brands don't, um, already have the kind of conceptual understanding to build these things out themselves.

And in large part, like we do know some, but they're, they're not really a fit for our services because they, they've kind of got their finance function on lockdown already. They're already doing really well there. So like when it comes to the market of, of brands that we kind of, uh, that we serve, that's definitely, um, that's definitely a shortcoming.

Um, I want to talk re oh, go ahead. Go ahead. 

[00:33:15] Thomas Gleeson: I was going to say from, from what I see at like founders and media buyers that I've seen in the last 12 months, they're overly fixated on revenue maximization and more traditional older school finance people. Are too focused on marketing being a cost and neither of those functions are focused on profit maximization and both of them think revenue maximization equals profit maximization and marketing spend reduction equals profit maximization.

But unfortunately the truth is somewhere in the middle and it's marrying the two functions together and it's about, yeah, maximizing spend where it's efficient. And obviously that would help drive profit maximization, but that's just kind of some, some stuff I just typically keep seeing in the last 12 months.

[00:33:57] Jon Blair: Well, and it's interesting because there is some truth. There is a truism behind, um, minimizing costs, right? But there's a difference between a fixed cost and a variable cost. And, and the profit maximization formula is not always true. The minimization of variable costs, right? Um, I, I, I wrote a post that's actually going to go live on LinkedIn in about two hours.

And it talks about rethinking your profit equation. Like I mentioned earlier, instead of revenue minus expenses equal profit, revenue, net revenue, times contribution margin ratio as a percentage of revenue, equals contribution margin dollars. And then contribution margin dollars minus fixed overhead equals profit.

And there's a really important distinction there, which is that your contribution margin ratio, the percentage of revenue, that's where ROAS maximization is. Comes into play. Is that generally speaking, if you're maximizing your MER, right, your contribution margin percentage as a percentage of revenue is going to be maximized.

But if you do the opposite, it's going to go down, but you multiply it by a net revenue volume. Right? And that's what gives you contribution margin dollars. So I used an easy example where, if you've got net revenue of 100K, and a 25 percent contribution margin ratio, that's 25, 000 of contribution margin.

But let's say you could increase ad spend, and hit 150K in net revenue, at a 20%. Contribution margin ratio. That's a lower contribution margin ratio, but guess what the contribution margin dollars are 30 K instead of 25 K. So if you operate at the same fixed costs in both those scenarios, you made 5, 000 more by increasing revenue to 150 K and letting your contribution margin ratio come down by 5 percent of revenue because you're letting your MER fall.

Now, word to the wise warning, I'm not saying that this math means if you do that for your brand. Your profit is going to go up. What I'm saying is understand these dynamics so that when you're sitting down and you're working with your ad buying team and they're talking about different MERs, they can hit at different spend levels.

Don't just discount a lower MER at a higher spend and assume it's not going to maximize profit. It could, but you need to understand conceptually this math to forecast out if it's going to be better or worse for your bottom line. Um, So really quick in talking about all of this, there's this kind of thing that we've mentioned a couple of times.

We're kind of circling around its attribution. And I guess more specifically what I hear all the time is like ROAS versus MER ROAS versus MER, which one do you prefer? Right? Um, the reality is They're related, but they're not the same thing, right? They're, they're, they're, by definition, they're not the same thing.

What, what are some of the kind of thoughts or, or opinions you have around ROAS versus MER? And, and how you consider contextually using those metrics in different contexts? 

[00:37:09] Thomas Gleeson: Yeah, um, I'm going to give the most marketer answer ever here and say, it depends, but, um, I, I'm firmly in the merge train, to be honest with you, uh, me or all day is my best metric in terms of the efficiency of your marketing spent.

Robust is great. Um, I think it's fantastic. It's great as a guiding indicator, but I just think attribution, no matter what kind of tools you're using out there has become so murky in the last couple of years, and it misses a lot of the picture from a margin perspective as well that I think merges cuts out the noise.

Um. Really just gets to the, gets to the point a lot quicker in my opinion. I think roas on a channel level absolutely is really, really important. And on a campaign level, obviously it has to be because your mirror is more of a business principle rather than a campaign level, ROAS driven principle. But ROAS is obviously still really important on a, on a campaign level, but if you're looking to gauge the effectiveness of marketing on a business.

Mer, in my opinion, is the only way to really do that accurately. 

[00:38:09] Jon Blair: Yeah, I have a, I have pretty much the same opinion, and said in, in terms, in the way that, that I think about it, ROAS should be used to look at a more granular level, like you said, channels, ads, and if it's going up or down as you're making changes, right, within a given ad channel, or within given ads, Um, generally speaking, you, you should, you should really consider those changes in ROAS to make more tactical, granular changes to your advertising strategy.

But, you should correlate those changes in ROAS back to MER to make sure they're heading in the right direction. Especially if you're talking about the ad channel level, if you're looking at Facebook ROAS, when you see it go up and down, you should go back and look at MER during that same period and see if it's going up or down in concert with it, right?

A lot of times I do see them going in the same direction. So directionally, that tells me that ROAS tends to be correct. It may not be the correct dollars of return on ad spend, right? But directionally is correct. And so there's this correlation that you should be following between ROAS and MER to make sure that what the ad channels are telling you is correct.

Um, is correlating to M. E. R. If they start going in the opposite direction, you have a problem somewhere in your funnel that you need to dig into because it just it would indicate that your row as is going up and your M. E. R. is going down and that there's, there's, you know, some, there's something weird going on there.

Um, so here's another one that, you know, um, I think is really interesting to think about. And to be honest with you, there's no right way to think about this, but I'd love to just get your perspective on what you guys see, um, with your store hero clients as it relates to this channel or this as it relates to this challenge.

And it's, it's cross, it's omni channel, having more than one e com sales channel, right? And so specifically an Amazon store, And a Shopify store, right? And so, to set this up, I've got several brands who are spending heavily on top of funnel on Facebook or maybe YouTube, but usually on Meta. They have an Amazon Seller Essentials store and they have a Shopify store, right?

And, and generally speaking, you tend on the accounting side to allocate all your Facebook spend to the Shopify store because it is really hard to, It's really hard to determine how much of that is bleeding over to Amazon, but we know it's bleeding over to Amazon because we've messed with top of funnel spend and seen Amazon go up and down in correlation with it, right?

What are you seeing brands struggle with here in that kind of like cross channel attribution? And is there any advice that you're giving brands of how to think about that when they have both a Shopify and an Amazon store? 

[00:40:58] Thomas Gleeson: Yeah, big time. And the third one I'd probably add in there is probably POS locations as well.

Um, I think there was a stat a couple of years ago that typically when brands open a new physical location, even online sales for that region will have a spike of up to 30 percent in the first month. So, um, you know, you can't discount the, the impact of a physical location on your Amazon and your Shopify store as well.

I probably have a channel like Ecom, like an omni channel MER broken out by Shopify, Amazon, and probably POS to a certain extent as well. Maybe not so much POS, but I probably have it broken out by channel, but also on a business level again, I think it's important just to have that kind of, that breakdown, that clarity to understand what's actually working still on a business level, but obviously still broken down on a channel level as well.

But as you said, that the piece between. Facebook and Google ads and how that bleeds into Amazon is incredibly difficult to try and solve. And as you said, I would be of the same opinion as you that, you know, the Facebook ads should transpire to higher Shopify sales, but we've seen the same thing with a number of stores where, you know, Facebook spend goes down.

Because maybe Shopify sales aren't fantastic. And then Amazon sales also go down directionally the exact same week as the Facebook spend, Facebook spend dips. So it's, it's a bit of a mishmash to be completely honest with you. I, if I was given advice to have a business mirror, but also a channel mirror as well, where possible, because again, you want to just see the directional cues that you're getting positively or negatively.

[00:42:27] Jon Blair: Yeah, I mean, that's the way that we've, um, had to look at it with the brands that, that we work with. I've got a brand who's spending 2 million a month on meta, so there is absolutely a halo effect on their Amazon store, right? And, um, what we've, Done is we have a channel level, um, Mer and we do allocate all Facebook spend to the Shopify store and on Amazon, only whatever they're spending on the Amazon platform gets, um, allocated to Amazon.

So what does it look like? Their Shopify Mer appears super low relative to their Amazon Mer, but we're also. Um, we're also looking at an omni channel blended MER for the whole business, right? And that's helpful because when we make changes, like you said, cut spend on meta or crank spend on meta, we do want to see what it appears the Shopify channel MER is doing, but if the overall business MER still stays solid because Amazon's rises or stays steady, and the overall business MER is healthy, Generally speaking, we'll keep cranking on the spend, even though Shopify looks like it's not doing well from an efficiency standpoint, so that's, that's another kind of example of like looking at more granular channel metrics, but then going, hey, if the business level MER is holding, We might want to not mess with anything cause this is all connected and we're, we're, we're producing the Mer that we want at the business level.

So let's, let's keep on going. I know that that's not always the answer that brands want to hear. They want, like, it's not uncommon that they want their CFO to like tell them basically solve the attribution problems of the world. And, and that unfortunately we can't do that. Um, there are SAS companies spending millions of dollars trying to solve that problem.

Right. And they're still struggling. Right. But we do have some holistic ways by using Murr to at least assess if like the bottom line impact of the, of the marketing decisions you're making are, are heading you to are pushing you towards or further away from your goals. Um, when, so coming back to store hero, this is a tool that helps you.

Um, you know, again, amongst other things, uh, measure your order level profitability with a contribution margin lens, your SKU level profitability with a contribution margin lens also allows you to look at your company's profitability because you guys are pulling in fixed operating costs as well, or the system has the ability to do that.

Where are you seeing the biggest challenges of getting the data that you guys need for a particular brand to have. Rock solid, um, store here reporting. I'm sure there's some that have it together, right? And store here is just working from the very beginning. And then others were, there's a learning curve of like fake walking them through what data they need to pull and having the right definitions, like landed product costs versus just supplier costs.

Walk me through where some of the biggest challenges are that you're helping brands with as it relates to the data. 

[00:45:27] Thomas Gleeson: Sure. And just to kind of set the scene, I suppose, yeah. So Tor Hero is, it's a SaaS platform for e commerce brands and agencies to centralize e commerce marketing and finance operations to get a, a true review of the margins, unit economics and profitability, as Jon kind of said there on an order product and also on a business level there as well, um, the e commerce and the marketing data is.

Not going to say easy, but it's it's plug and play and the, the, the, the secret sauce, I suppose, that we're trying to help brands with is understand the profitability lens. And, you know, to understand the profitability lens and to have accurate data. You know, cost inputs need to go in there. You need to make sure that your, your shipping costs, all of your, your variable, variable or marginal level costs are correct.

And then also your, your operational expenses. So to be completely honest with you, brands are probably using this in two different ways. Some brands are happy to just get to CM3 contribution margin and leave it there. Not input their operating expenses. Um, and then other brands do want to input all of the opex and get down to EBIT r to net profit.

So in terms of the marginal costs or the variable expenses, um, we hook directly in with your shipping carrier. So your ship stations, your ship Bobs, and the likes. Um, then we pull in all of your three PL costs, your return costs, um, any of your transaction fees. They all pull directly in from Shopify. Um, and any and any of the, of the, of the other kind of marginal costs that you might face, that onboarding is probably only 10 to.

10 to 10 to 30 minutes, depending on how ready you are for the call. Really? And the 2nd part, which can be more a little bit more cumbersome, but also not not too bad is the operating expenses and how they get inputted into the platform. So we can do is up your integration or is a pure integration to map indirect as quickbooks or to 0.

But a lot of businesses are, they're using StoreHero to get to like 90 percent or 95 percent confidence. They don't want to input every single cost into StoreHero. They might have the Zapier integration set up with Xero or QuickBooks. So they're kind of putting in 90 percent of what that recurring OpEx looks like.

And say, that's, that's a good enough directional cue for us. We know our bookkeeper or accountant is going to have our accounts over to us at the end of the month. But we're pretty confident that we have. Profitability with 90 95 percent confidence interval here. So you can input your staff costs, your rent costs, software fees, agency fees, very, very quickly.

Typically, even if you want to go ahead and actually input all of the operational expenses of the business, total onboarding time rarely goes over 45 minutes. 

[00:47:53] Jon Blair: Yeah, I love that. Um, another thing that you touched on and I won't get us on a tangent because we got unfortunately got to land the plane pretty soon here coming up on time.

But there's one other thing that I've been noticing recently that you just touched on, which is agency costs. There is often times, there's almost always a variable component to agency costs, because they're usually charging at least part of their fee on a percentage of ad spend or a percentage of revenue.

And so that is a variable cost that often times, um, brands, Tend to leave out of their contribution margin equation. And so I just want to point that out, that that's something, um, you know, if you're not doing that, that's something that you want to consider, um, heavily because those agency fees really do scale, um, if there's a variable component to them and then that catches a lot of founders off guard.

[00:48:41] Thomas Gleeson: Just to double click on that, Jon, because I'd love your feedback on it. Because I, I speak to hundreds of, hundreds of businesses a month, there's such a divided opinion on whether agency fees go into marketing budget or as an OPEX or operational expenses. I'm of the opinion they should see it as a marketing cost and feed into your contribution marriage and figures.

Um, but I get pushback from that sometimes, um, curious. It sounds like you're in the same kind of camp as I am in that sense. 

[00:49:08] Jon Blair: Well, if it's an agency, right, and there's a variable component to it, it's got to be, at least the variable component should be in, in your variable marketing costs at the very least, but at Free to Grow, um, all marketing contractors.

So like, that's whether it's an agency or a freelancer. Get, um, tend to get coded as a marketing cost. And so when we are showing brands, their MER, we call it MER per, uh, QuickBooks or MER per their accounting system, MER per their, um, general ledger. It's net revenue divided by everything coded to marketing.

It's not the same MER that's being measured. On just an ad spend basis, right? And that's so that they understand the disparity between their advertising MER and what they're fully loaded MER, right? And it's, it's important because making an in source versus outsource decision, right, for something like an agency.

Is a true incremental cost decision. We're bringing it at one, at some point I was explaining this to a brand the other day, like, Hey, we don't need to, your agency is crushing it. I don't want to rock the boat, but I want you guys, you guys are killing it. They're scaling ad spend. And I just want you guys to see that like in my model, as you guys scale to these revenue numbers and ad spend numbers, 40, 000 a month.

And so my question to you is how many people could you hire internal, right? That just focus on your brand all day, every day for 40, 000 a month and potentially get better results. It's, it's a, it's a hard decision to make. It's not like black and white, like we're spending this much money. So we need to bring it in house because an agency who's doing a great job as an agency is doing a great job and they're keeping that off your plate and you need to, you can need to take into other considerations, you hire people in house.

You need to be able to manage them, right? There, there's other employment costs. And so, you can't look at it in just, uh, isolation. But, it, it absolutely is a variable cost. And if you, if you take a variable cost, again, because it's, there's usually a percentage based on ad spend. So as you scale ad spend, that cost goes up, making it variable.

Um, It, when you take that variable cost and you convert it to a fixed cost by hiring someone in house, then you should scoop that variable cost out of your contribution margin and now it becomes a fixed operating expense, right? And so it is important to make those distinctions, I believe, from a finance standpoint.

[00:51:34] Thomas Gleeson: Yeah, I couldn't agree any more with you in that, in that, on that sense. Um, yeah, and depending on the size of your, your brand, um, You know, that could be a complete misnomer to your contribution margin and how your business actually functions. So, uh, I think we're on the same page in that one, which is, which is fantastic to hear.

[00:51:51] Jon Blair: Absolutely. Absolutely. So we're running up on time. So I got to help us land the plane here. Um, before we close out, I always like to ask, um, a personal question. And one thing that I'm interested in is what is something you're reading or listening to, or some kind of resource out there that you'd That you've been kind of, uh, consuming and digesting that you've just found, like, really empowering or interesting that you think could be helpful to the audience.

[00:52:19] Thomas Gleeson: Um, at the moment, I have been I'm going to have to edit this and think about it. Um, what am I even reading? See, I want to say, I want to say, uh, take a holiday here, but I probably shouldn't. Um,

um.

Um, so right now I've been reading a lot, um, but probably to be honest where I'm getting most of my educational stamp, educational information from e commerce, just the trends and what's going on in the industry right now. The limited supply podcast from Moiz Ali. And Nick Sharma has been phenomenal. Um, probably the, the unofficial Shopify podcast from Kurt Elster.

I've become a little bit more of a podcast guy in the last couple of months, because I don't have as much time to read. I wish I had more, but I don't. For sure. Probably lent into Ecom podcasts a little bit more. So, um, probably the unofficial Shopify podcast and the limited supply from, uh, Nick Sharma and Moiz Ali.

[00:53:28] Jon Blair: Those are both really solid ones. I listened to limited supply as well. If you're a brand operator listening to this and you're not listening to either one of those podcasts, I definitely. I definitely endorse them and highly recommend you check them out. They're chocked full of knowledge and really also just help you like not just from a strategy and tactics standpoint, but they can really help you just kind of stay up to date on the trends.

It's more of the macro trends within the e com space that can be really, really helpful. So, um, well, Hey Thomas, this has been an awesome conversation. Um, brand operators listening to this. Um, there is so much. There's so much advice that you can follow in this episode. Um, but you know, if you're interested in finding out more about Thomas or about Store Hero Thomas, where can people find out more about you guys?

[00:54:16] Thomas Gleeson: Sure, so you can head over to storehero. ai Uh, you can get me on LinkedIn at Thomas Gleeson and more than happy to chat with anyone, set you up with a free trial and do an initial free consult to help you get the most out of Store Hero and the most out of your business. 

[00:54:31] Jon Blair: Awesome, awesome. Well listen everyone, I'd highly recommend you check out StoreHero.

Super powerful tool. If you're a profit focused DTC brand, um, you need to understand your contribution margin and making it easy to report on and understand is, is, is what shop, or is what StoreHero is really, really great at. Um, so yeah, I appreciate everyone tuning in. Look, if you want more helpful tips on scaling a D2C brand, consider following me, Jon Blair, on LinkedIn.

And if you're interested in learning more about how Free2Grow can help you scale your brand alongside healthy profit and cash flow, consider checking us out at freetogrowcfo. com. Thanks again for listening and until next time, scale on!

Mastering the Art of Scaling DTC Ad Spend

Episode Summary

In this episode of The Free to Grow CFO podcast, host Jon Blair, founder of Free to Grow CFO, discusses the intricacies of scaling a Direct-to-Consumer (DTC) brand with a profit-focused mindset alongside guest Bryan Cano, VP of Marketing at Nood. They delve into balancing paid acquisition with maintaining profitability and cash flow. Bryan shares his entrepreneurial journey, the path to joining Nood, and his experiences in driving the brand's growth through focused marketing tactics. He outlines the importance of understanding contribution margin dollars, some challenges with attribution post-iOS 14, and insights on optimizing ad spend, including protecting the conversion signal on Meta and the potential influence of Amazon advertising. This episode is a true masterclass for founders and marketers alike, looking to skillfully navigate the complexities of ad spend as they scale.

Meet Bryan Cano

Bryan Cano, VP of Marketing at Nood, is a seasoned marketing professional with 8+ years of experience. He has led data-driven media strategies for DTC and F500 Retail Brands with a proven track record of generating incremental revenue by finding the right marketing mix to drive brand awareness, qualified traffic, conversions, and customer loyalty. Bryan is a growth advisor and mentors early-stage startups.

Episode Transcipt

00:00 Welcome to the Free to Grow CFO Podcast!

02:26 Introducing Bryan Cano, VP of Marketing, Nood

09:23 Scaling Ad Spend: The Right Way vs The Wrong Way

19:01 The Importance of Margins in Scaling Your Brand

28:12 Cross-Functional Planning: The Key to Successful Scaling

29:05 Demystifying Contribution Margin in Business

31:11 The Practical Nuances of Contribution Margin

32:51 The Impact of Rigorous Measurement on Ad Buying Strategies

39:27 Exploring Omni-Channel Performance Measurement

41:09 The Theory of Conversion Signal and Its Impact on Ad Spend

51:58 Final Thoughts and Future Learning Directions

[00:00:00] Jon Blair: Hey, what's happening everyone. Welcome to the Free to Grow CFO podcast, where we talk about all things scaling a DTC brand with a profit focused mindset. I'm your host, Jon Blair, founder of Free to Grow CFO. And for those of you that don't know, Free to Grow as an outsourced accounting and fractional CFO firm built exclusively for growing profit focused e com brands.

All right, today I'm super stoked to be chatting with my buddy, Bryan Cano, VP of marketing at Nood. He and I have been working together, um, at Nood. for about a year and a half. Had some really interesting experiences together, um, you know, driving forward the growth of that brand. I'm not going to take credit for driving forward the growth because it's not me.

It's Bryan and the other incredible marketing resources at Nood. But we've worked hand in hand. On how we balance the scaling, um, the scaling of the brand from a, you know, paid acquisition standpoint and balancing that against profitability and cashflow. And so I'm super excited to have Bryan. Today's talk is going to be chocked full of tons of nuggets for you DTC brand operators.

So, uh, Bryan, welcome. Appreciate having you on man. 

[00:01:15] Bryan Cano: Thanks Jon. I appreciate it. Yeah, excited to finally join. I know we've been talking about this for, for months and it's great to finally make time and chat with you. 

[00:01:27] Jon Blair: It's hard to get into your schedule, man. You're, you're a busy dude, rightfully so, doing big things over there at Nood. Um, so look, for the audience, I want you guys to all understand, we're going to continue the conversation that we had on our last episode of this, You know, delicate dance that you have to, um, that you have to manage as you're scaling a DTC brand, where you're balancing, leaning in to paid advertising as you're scaling, having to maintain efficiency and balance that with how it's driving profitability.

And then there's even the cashflow component of all of this. Um, gotten some really interesting, um, discussions talking with Ryan Rouse on our last episode. And I'm really stoked to have Bryan here because he has much more of a focused marketing background that's led up to his time at Nood. And so I think, um, I think that you're all going to find some really, really helpful tips and traps to avoid as you're working on scaling your own D2C brand.

So before we really get into the weeds on this topic, Bryan, I'd love for you to just take the audience through a little bit about your background and your entrepreneurial journey that ultimately, um, you know, ended, journey's not over, but in this chapter, ended with you, you, uh, arriving at Nood 

[00:02:46] Bryan Cano: okay, yeah.

Well, uh, you see, when I was three years old, no, I'm just kidding, um, I think it really began for me, In in college out of necessity to, you know, to pay through school, um, had nothing to do with marketing, but I didn't realize at the time that that's what I was doing. And it was in college. I was, uh. Uh, working at an accelerator program, um, where they were doing seed investments, 50 to 100, 000 checks to multiple startups.

Um, I was, I was volunteering, right? It wasn't getting paid, but I was just kind of there and I was around and I was like, oh, this is really interesting. I like, you know, um, I want to be an entrepreneurial entrepreneur. And I want to be around some of these folks that think this way. And one of these guys, um, he was, uh, the CMO, or he was like the VP of digital over at, uh, Cellucor.

It's a nutrients company, but he was, you know, doing this like Amazon arbitrage thing. And he taught me a lot about that private labeling. And I was like, okay, this is awesome. So, uh, really my marketing career kicked off. When I, you know, source some products from from China, this is back in 2014 as well.

And, you know, we needed to sell them. So did kind of like an email sign up very simple website and ran ads. And I was like, awesome. And, you know, I turned this small investment and doubled it. And I just did that. And like, that's pretty much how I went through and pay my way through college. Fast forward, ended up starting my own agency.

Um, and I shuttered the agency because I couldn't scale it in terms of human, like resourcing. I had the clients, but I just couldn't find the right people that were as passionate about this as I was. And so shuttered the agency and ended up working at a different ad tech firm called Stitcher ads. Um, at Stitcher ads, I, Became the senior director of media strategy, creative media strategy.

And then, uh, uh, basically worked with a series of, of enterprise fortune 500, uh, brands, retailer and non retail brands, um, and oversaw creative and media strategy. We ended up getting acquired and during the acquisition, I ended up becoming the director of efficacy at the car, at the company that we were acquired by, and that's just a long title saying that I was in charge of measurement.

So. I ended up being in charge of measurement and media strategy for the entire organization. Continue to work with the existing brands. And this is kind of where I started to start to look for more. Um, and a mutual friend of, of Sam Garst, who's the founder at Nood, uh, and myself, he introduced, uh, Sam and I.

And we hit it off, had a couple of beers, and I ended up joining Nood as a contractor in October of 2021. Um, so right before holiday. Uh, and that was kind of the start of the journey with, with Sam and I. Um, you know, I stood as a contractor and during that period we were scaling aggressively. Um, and it got to a point where it just made sense for me to join full time.

Um, so. You know, we, we, we was sort of accidental. I wasn't looking, um, but, you know, that, that mutual friend of ours, I think they were like, on a trip to Cancun or something. They were on the beach in Mexico and Sam was just complaining about how he couldn't get past a certain point. The business was having a hard time scaling.

And, um, Peter, uh, shout out Peter, uh, was like, hey, you need to talk to my buddy, Bryan. And so, uh, that's really sort of how the, you know, Sam and I got together and started working on Nood. 

[00:06:34] Jon Blair: I love it. Um, just for, uh, for, uh, the audience audiences sake, Sam is going to be on the podcast sometime several weeks from now.

We're still working on, uh, uh, getting him scheduled. He's a super busy guy, CEO at Nood. Um, you'll be able to hear the story from his point of view. Hopefully he says, uh, Talks about it in similar, similar light. Finding Bryan. No, that's a joke. But, um, okay, so there's a couple of things I want to double click into here.

So I started working with Nood as a fractional CFO, believe in July of 2022. So about a year and a half ish ago, getting close to two years. And I remember meeting Sam. And him saying, I go into a team happy hour that he invited me to you were there. That's where I met you. And, um, I remember Sam saying this distinctly to me.

I love Bryan because he's not afraid to spend ad dollars. And now that, that might sound kind of weird to. People listening because I think a lot of DTC brands are really concerned about the Irresponsible spend that oftentimes happens right from ad buyers and both independent You know freelancers in house ad buyers and and also on the agency front But my perspective has really, really changed on scaling having worked with you because I would say before meeting you, I was on that other side of the fence, which a lot of our audience probably is, is that like, Oh, ad buyers just want to spend all my money and, and, um, you know, frivolously because they get, they oftentimes get paid a percentage of, of ad spend or a percentage of revenue.

Right. And so it's just in their best interest, but working with you, I really realized let's be honest with ourselves, unless you have another acquisition engine outside of paid advertising, which there are some brands that do, there are some creator led brands that have really strong organic, um, kind of like top of funnel, right?

But that's not most brands that would, I'd say that's absolutely the exception and not the rule. And what I learned from Bryan is you have to be able, you have to be willing to, to build out a track of, of increasing spend incrementally on a daily basis or a weekly basis or every other day, some schedule, because if you don't scale spend, you won't scale your brand unless you have some non ad driven, um, Acquisition engine and that really changed my whole perspective seeing what what you have done And I you know, I can't name any numbers because it's confidential but just so the so the audience knows Bryan and Sam Scaled and on the back of Bryan's ad spend they they scaled from zero To healthy eight figures in like two years.

It was absolutely incredible and So walk me through a little bit, Bryan, like, obviously we don't have enough time to get into all the nuances. But walk me through how you think about the best practices involved in, in like laying out a schedule or a plan to scale ad spend over time. Because there's a right way to do it and a wrong way to do it.

I think you are, your brain is filled with tons of best practices and lessons learned on the right ways to do that. 

[00:09:52] Bryan Cano: Well, and I've seen first hand the wrong way. Um, You know, I'll give a quick anecdote before I think a year and a half, maybe two years before I was working with with Nood, I was working on a different company in Australia, and they brought it brought me on to basically help them with their go to market for the U.

S. And they really wanted to scale. And I like I five X this business in in three months. Um, and against all like red flags, We did, we like scaled, you know, they were hitting record breaking numbers five X in, in just a few months and their business was not prepared to handle it. Um, acquisition row as all of, you know, the Mer all of our, our metrics and KPIs to measure the, the efficiency of our ad spend.

Those were holding things were great. In fact, there was more signal things were even performing slightly better by like five, five to 10%. But everything else that's behind the scenes that I think people often forget about, and it's not as glamorous, it's not the thing that comes to mind, that all unfortunately was overlooked.

And margins were squeezed. I think the gross margins of the business were like 60, 60%, 65%. And after everything, it got squeezed down to like three to five. Um, I'm talking the number of customer service agents that they needed to hire. The logistics and fulfillment. Pick, pick and pack. They had their own warehouse.

Um, they were out of Australia so they could very easily source, pick and pack right there and then ship out. So they needed to hire a lot more people, not just that, but the people that they had, they had to pay overtime to handle the influx of orders. Um, so tons of human capital. Just got sucked up right there, not taking into account things like returns, higher return volume from the previous months, right?

As, as you sort of, you know, you, you, you start to hit those, um, those sort of, uh, stair stepping scales, scale exercises, and, um, just a, a plethora of these hidden expenses started to like surface up, completely ate the margins of the business. And so I think with, you know, seeing that, that. First hand, it's kind of created this, this, um, checks and balances, if you will, sort of a checklist.

And I think that's what we did exceptionally well with you with you is having very candid and transparent conversations about can we afford this? What does it look like? How do our lines of credit if we needed to pull the trigger? On supplementing, um, any op ex, like, do we have, do we have the, the, the credit or the funds to do?

So, um, and there were a lot of terminology ended up learning from you, like, quit working capital. Right? And like, how many, um, what, what is the. The future debt and how does that affect the net quick working capital and all of that? And I thought that's that was absolutely brilliant when we, when we going back to your question of how, um, laid out a plan to scale new, it's actually quite simple, right?

You want to basically lay out, you know, a spreadsheet where 1 column is all of your days or your weeks and you just put it together. Go all the way down for the rest of the year. Um, the next column is your current spend. That'll be your actuals column. And then you'll have two additional columns where it'll be your forecast spend and your, like, you know, your, your, um, your scale plan.

And so your scale plan is really what's driving the scale, right? So, Let's say your scale plan is. We want to scale every other week, and so we want to scale every other week by 20%. And how we do that is by scaling, you know, 10 percent on Mondays, Wednesdays and Fridays, uh, because those are our best days.

And it, you know, we give a little bit of breathing room before. And so you would go into the spreadsheet on Mondays, Wednesday, Fridays, you type in 10%. And you would basically map out your forecasted spend to increase 10 percent on those given days. And then you can check in and see, okay, are we, does this plan allow us to scale every two weeks by our target spend plan?

Um, and you, As you get your actuals in, you punch those in and you course correct the scale plan. So maybe you did 30%. It was a phenomenal week. So 30% is what we did last week. We want to continue our pace of 10% every other week. So now the plan is elevated a little bit more and what the beauty of that it's, it's one, it's so simple.

Two, you're actually seeing where your spend, you know what your spend is. And so. There gets to a point where like that 10% increase is not as simple, right? Going from $500 to $550 is very different from going from, um, you know, a hundred thousand dollars to $110,000. And so I think you definitely want to be, you know, realistic and, and not, um.

And look out for those, those, those periods where the scale plan doesn't work anymore. It just doesn't make sense. And you want to pull back those numbers or keep them flat. The biggest advice I have for people is stair stepping your scale. It should not be linear. It should not just be up into the right.

It should be like going up up a series of stairs. So, cool. You scale and then you hold for a little bit, right? Like give yourself about a week or two to hold to make sure that one things are stable too, that there aren't any of those hidden traps, right? That the business isn't aware of customer service tickets returns, maybe because you rushed.

This batch of inventory, the quality assurance of the factory has come down because they just need to get product out of the door. And so maybe there's defects or maybe there's like lower quality products that are now getting returned. So you want to give yourself about a week, um, and maybe a week isn't long enough.

So really based on your business, but give yourself time to make sure that things are stable and then go back up and scale. And then give yourself time up and scale and give yourself and I think that is, it takes a lot of discipline. You have to be very transparent and honest. And one, are we hitting the pace?

Are we going too aggressive? We need a, we need to stick to the plan. Um, and it sort of requires patience because when you see that things are going well, you're going to want to go, well, let's just flatten that out and get aggressive and go up into the right. Sure. I think we had, this was like a topic of discussion of many times with uh, Send you an eye where You know, there was a lot of eagerness and, you know, we almost wanted to like flatten those stairs out and just say, no, no, no.

Like, let's just go, let's just keep going. It's like, no, we, we, we definitely need to establish that discipline because it's the only way when you give yourself a breathing room and you try to stabilize and you say, okay, what does it look, what does the business look like when we are at this pace for a little bit?

That's when you start to surface all of the issues and you want to surface those early on when your spend is up. Is down here for sure. I'd like 10, 000 a day versus when your spend is like up here at 100, 000 a day, that the magnitude of the problems just becomes so much larger. So it's best to catch them early.

[00:17:08] Jon Blair: So believe it or not, Bryan, that advice right there is next level for probably most of the people listening. To this, uh, podcast and a lot of the brands that we work with. Um, there aren't, there are, there are plenty of really talented ad buyers out there, but there are more that don't know what they're doing than there are ones that are really, really talented.

So unfortunately I think a lot of DTC brands get. They get freaked out and become gun shy because they've had some bad experiences with some poor, um, ad buyers. But what you just laid out there, honestly, I got a masterclass in this, just working with you for the last year and a half and learned a lot more.

I thought I knew about scaling ad spend until I worked with you in Nood and, uh, realize how much I didn't know. There's a couple of things I want to summarize to point out here so that the audience can, uh, Kind of let this sink into their mind. One, the days of the week thing. Super huge, right? You hear how Bryan was being very intentional about what days of the week should he scale spend?

Because he had data on which days performed better than others and he wanted to scale into the days where where new typically has better performance. That's super huge. The other thing is the stair stepping, right? Is that you have some period where when you increase spend you're staying level. And you're, you're, you're watching the data and making sure your performance is holding before you take the next stair step.

And then, um, you know, knowing when to pull back or just hold because your, your, your marketing efficiency ratio, or what we call Murr at Nood. And I, um, a lot of people call it M A M E R because of Bryan and Sam, I call it Murr and I've, and I've been spreading that, um, uh, across our client base, but that's a side note, but yeah, knowing when to pull back.

When your MERS is, is breaking down, knowing when to hold or pull back. Now, I want to dig into something that Bryan talked about, uh, for a second, um, which was margins and how important that is. Gross margin, which at Free to Grow CFO, we call gross margin, the margin that just takes into account landed product costs.

And then after that we back out, um, uh, shipping and fulfillment and credit card fees. And we call that contribution margin before marketing. You know, again, we can't name specific numbers, but Nood has healthy contribution margin before marketing. There's a lot of room. I would say there's above average room to spend, um, to spend on advertising relative to the average DTC brand.

Um, walk through, I just love to hear a little bit from you when you've got healthy margins to work with, right? How does, how does that change the calculus? Calculus. of your planning and what you feel that you're able to do in terms of scaling ad spend and kind of compare like, hey, I've got two scenarios.

I've either got a brand with like really healthy contribution margin versus before marketing or another one that's quite a bit slimmer. How does that change what you think is possible and how you set forward, set forth a, um, a scaling plan from the ad buying perspective? 

[00:20:24] Bryan Cano: Yeah. Um, you know, when you have healthy contribution margins just before marketing, it allows you to afford a higher customer acquisition cost.

In short, you can be way more aggressive. Now, you want to find this balance between efficiency. And I was actually talking to a, um, a buddy, uh, Cody Plofker over at Jones Road Beauty. He's a CMO at, uh, uh, with them. And he recently switched from looking at contribution margin ratio or the percent. Uh, and started looking at contribution margin dollars.

He wants volume of dollars. And he's like, you know what, if my margin goes from 10 percent or 15 or theirs is probably higher. My margin goes from 30 percent and it squeezes all the way down to 15 or 10. that's okay because I'm yielding more volume. And so I think this is where you need to have a very honest conversation and really establish the KPI.

That you're after and look like we want we want our cake and we want to eat it too in terms of well We want volume we want efficiency Let's have both but you you have to prioritize one or there has to be agreement on prioritizing one or else you're just gonna You're gonna try to solve for them both and you're gonna be you're gonna get stuck You're not gonna be able to scale this way if you want to solve for both just don't spend scale show that But I think I think the biggest, you know, when it comes to how do you think about it between a high margin?

You Contribution margin brand before marketing versus low, you need to really plot out and exercise. And I think working with a CFO team, like, like Jon, where you can look at both scenarios and you can like scale them out and you say, okay, at 5, 000 daily spend at this row ass, it's basically a matrix, right?

Spend on one column row as on the other going from zero spend to say 50, 000 daily spend and then going from like a 1. 5 row as, um, below your break, even all the way up to, you know, well above your break, even you want to see, like, what is the, what is the ratio contribution margin ratio is a 10 percent over here.

Is it 50 percent over here? What about down here? How's how's that compare? And you want to basically look at, look at that table and say, okay, where, where are we happy? Okay. We're happy at spending a hundred thousand dollars a day and spend, and maybe we're happy doing that at a 2. 5x ROAS. Or you know what?

Maybe that Is equivalent to spending 25, 000 a day of spend at a three XRO ads. And so you really need to have that conversation and what is best for your business, right? Are you going for market share? Are you going for profitability and sort of steady profit or growth? Because you're you in the next two, three years, you need to show year over year growth.

So you want to keep things slow and stable. Um, and I think that's where you need to really understand the vision of your Of your business. Um, you need to, you know, kind of get a sense of what is the most important thing. If you're in a hyper competitive space, maybe you need to be more aggressive than you normally would, because you need to be the number 1 in the space, or if you are in a less saturated space, and you're kind of creating the category a little bit, you can go a little bit slow and steady, because.

There's a lot more white space. You don't have a ton of competitors, but I, I think that's the biggest, um, the, the, the most important exercises is laying that out and sort of comparing the 2 and if you have high contribution margins, then I'll say you can probably afford a lower, uh, Sorry, higher CAC a lower row as if you have squeezed in margins, you're definitely going to need to find what is that balance because your margins are already tight.

And I think this this then opens up the conversation of do we have any lifetime value? Um, I worked with brands before where, like, their row as goal. Was a 0. 7. They were like, Bryan, anything above a 0. 7, we're, we're ecstatic. We're happy. And, you know, and at first glance, you're like, well, wait a second, this business wants to lose money, but they had such an incredible product that just drove an insane amount of repeat that a 0.

7 allowed them to be hyper aggressive. Their margins were already squeezed. They didn't have a ton of contribution margin to begin with. So 0. 7 was like, this is what works for us. And they were really banking on a two. to one CAC ratio, LTV to CAC ratio. So they were looking to get paid back within two months.

And it worked for them, right? It takes a little bit more sophistication and money out, money out, money in, um, because they're, they're really like, at first they were leaning on tons of lines of credit and debt, but now they've got this such strong customer base that all of this, the recurrent revenue is what's driving future revenue.

And so, we're They have to think about it a little bit more, more, um, a little bit more laid out of like, okay, what is the current cashflow of our existing and how many new customers can that afford to get us? And then next month, now that we have acquired those, those customers, we know someone we're going to come back and how does that help us with future acquisitions?

So they really think about it in cohort cycles. Um, but you know, a lot of this is going to be dependent on your brand, but there's definitely some options there, right? You can go super aggressive, low, Row as high CAC, or you can go more methodical, and then if your margins are squeezed, you need, you need a, some sort of LTV or repeat, uh, in order to be able to scale.

If not, I would solve for that first before scaling. 

[00:25:57] Jon Blair: Totally, totally. No, I, that's such great advice. And I want to call something out here that like, uh, I want to bring awareness to some, something. That, um, that I'm noticing in what Bryan is walking, um, you guys through in this episode. Bryan is VP of Marketing.

But he's sitting here talking about awareness of cash flow. And awareness of operational, operations ability to keep up with scaling ad spend. He's talking about contribution margin dollars. These are all non marketing. Aspects of a DTC brand. And the point I want to make for everyone is that whoever's driving the marketing strategy in your business and definitely whoever's driving the ad spend strategy, they can't do it in a vacuum, right?

They need to be aware of your operations functions ability. To keep up, they need to understand how what they're doing is impacting cashflow. They need to understand how what they're doing is impacting profitability and hopefully with a lens on contribution margin dollars and how they're driving contribution margin dollars.

Um, when I first started working with Bryan at Nood, I distinctly remember many different conversations of like, Hey, I think I can scale ad spend. And But am I going to sell through all of our inventory? Um, and like, are you sure we're not going to run out of inventory, Jon? Cause I can scale this ad spend, but if I run, if we run out of inventory, it's going to screw up my conversion signal.

I'm going to have to cut spend and I'm going to have to start at a new floor. And so that whole stair step that we're, that we've been talking about for the last little bit here. He has to start at the bottom of that staircase again because we ran out of inventory and he's got to do it all over again.

There's no magic, like just coming straight back up to the floor that the spend floor that you were at before you ran out of inventory. And so, um, the awareness of. Whoever's driving marketing has to have keen awareness and connecting points, connecting communication and reporting points to your operations team and your finance team.

One thing that, that we started doing at Nood like a year and a half ago was something, um, That I put in place at Guardian bikes and kind of brought that to Nood when I started working with them as a fractional CFO, which is what we call our cross functional planning meeting. It's a 30 minute touch base once a week.

We now do it once every other week, but like some regular touch base where you have whoever owns inventory planning. Whoever owns ad spend and then whoever owns cash planning and basically like your projections and forecasting from a financial standpoint. And it's a simple meeting to make sure everyone's on the same page.

Cause it takes, it's a three legged stool is the way that I like to think about it. If you take one of those legs off the stool falls over. Right. Um, and so. Super, super important that your marketing spend is done, is planned out and executed in a cross functional context. And then, so there's one other thing I want to dive into a little bit deeper.

I talk about this a lot on LinkedIn, and it's a hot topic out in the marketplace, contribution margin. But dollars versus what's called the contribution margin ratio, which is the percentage of revenue. It's important to know the percentage of revenue. But what I always like to say is percentages of revenue don't pay bills, dollars pay bills, right?

So it depends, it matters how many dollars you're generating. And for those of you who don't know, contribution margin, dollars, the definition is, is net revenue minus all variable costs. So variable costs meaning landed product costs, shipping and fulfillment, credit card fees and advertising spend. So what, what is contribution margin dollars represent?

Here's what it represents. The number of dollars left over after a customer is acquired and an order is fulfilled. It's the dollars that stay in your bank account that are available to contribute to or cover your fixed overhead. Right? And if you generate more contribution margin dollars than your fixed overhead, those contribution margin dollars then contribute to or increase bottom line profitability.

And so what Bryan was talking about earlier was, hey, the percentage, you should know it. It should be one of your KPIs. But what really matters is how many dollars of contribution margin you're generating after your ad spend, because that's what covers your overhead. And then hopefully, covers your overhead and drops to your bottom line profitability.

And there are times in which this isn't always the case. We tested this a lot at Nood. There were times when we tried to scale spend and our contribution margin ratio or percentage of revenue went so low that we actually generated less dollars, right? But there is this counter counterintuitive situation where you actually can spend more.

And your, your ROAS or your MER comes down, but you actually can generate more contribution margin dollars. And that's, that's what generally speaking, if you're trying to maximize profitability or increased profitability, it's the margin dollars that matter. Now. Now, here's the nuance in practice, and I'd love to talk about this a little bit, because honestly, I honed this skill, no joke, in large part, working with Bryan.

And, like, let's not, let's be fair to Sam. Sam gets a lot of credit for this, too, and I know you'll agree, Bryan, like, Sam has been, um, very, Um, rigorous about making us focus on daily contribution margin dollars with rightfully so. Like I have a lot of respect for Sam forcing us to really focus on that and forcing us to figure out how to measure that as accurately as possible.

Like, um, and, and I don't wanna go on a tangent, but there's just so much that we have developed organically in terms of a process of how finance and marketing should work together. Specifically at Nood. Like, like Bryan. Is tracking contribution margin dollars generated on a daily basis. And at the end of the month, we're almost dead on with our actuals when the financials get closed.

Right. And, um, it, it, it's a, it's a partnership like finance. I'm always letting Bryan know, Hey, our margins have changed a little bit. You need to change your formula and here's why they've changed. Oh, we've changed price points. If we change price points, our contribution margin for each order is going to be this.

In on Amazon and this on direct. So it's definitely a partnership, but I, I just want everyone to understand, like we are measuring contribution margin dollars on a daily basis and our estimate almost perfectly ladders up to the financials at the end of every month, a lot of rigor, but not rocket science, totally doable, right?

It's totally, totally doable. How has that changed your perspective on ad buying? On a day in and day out like us getting so rigorous about we We can forecast on a daily basis contribution margin dollars that we think we've generated and it's so accurate. 

[00:33:10] Bryan Cano: I, I think it's, well, before I dive into the question, I've, I've, man, it's, it's an ever changing, it's an ever growing continual progression and, and just improvement, I guess, of this.

It's been improvement for, Well over a year now and I don't know if you saw the latest so every morning at six in the morning is it 6 58 a. m We get a slack notification. That's automatic and it's basically the previous day's report and it's got contribution dollar margin It's got contribution dollars.

It's got it by channel amazon versus Versus shopify and then the latest edition in this Um, exercise towards progress and improvement. The latest edition is I've added rolling 7 day for 8 to 14 day, 15 to 21 day and 22 to 28 days. So, basically, I have, like, week 1, week 2, week 3, week 4 to see the progression.

Um, that's the latest edition over the weekend. Um. So yeah, so we're, we're measuring this thing and we all check 

[00:34:11] Jon Blair: it every day. I still, I work with several other brands and I still check it every single day, seven days a week, just because I want it. 

[00:34:18] Bryan Cano: Yeah. I wake up. It's the first thing I look at in the morning.

Um, but how has this affected my, you know, my ability to media buy and just execute marketing in general? Oh my gosh. It is. You know, measurement and attribution is something that's so difficult and the platforms, yes, they try. And, you know, you, you try to make, make the, uh, you know, find the right tools. And there are certainly tools that help.

But if you are like, look, we were, we're, you know, we're, we don't have the funds to invest on a 5, 000 attribution platform. We're a measurement partner. This will allow you to measure very simply put because When you activate these funds You will see the impact in your contribution margin dollars. And when you are doing this on a daily basis, you can definitely see Um that impact right whether there is an impact or not.

I'll give you a plethora of examples one Um, one day I was just like, you know what, let's cut Amazon spend. Just cut it entirely. I don't believe Amazon I've yet to be given proof and evidence and reason to believe that Amazon is incremented to the business. We were spending about a hundred thousand dollars on Amazon ads.

Cut it. Next day, contribution margin dollars hold contribution margins. Well, when you look at them side by side, they, that holds in fact, not, sorry, not, not, it didn't hold. It got better. Yeah, it got 

[00:35:44] Jon Blair: way better. It got way better. 

[00:35:46] Bryan Cano: Money. And we were. That money that we just cut, the expense, was added directly into our contribution to our margin.

And that stuck. I was like, hold that for about 2 3 weeks. It stayed the same. To this day, we cut this back in November. Risky move, doing this before holiday. We cut it in November. Still the same margin. Great validation. We don't need Amazon ads that didn't take a rocket science measurement tool or match market Geotesting with holdouts and all this stuff.

You can definitely do that and I would have a much more accurate view but This this just measuring on a daily basis just allows you to get more accurate right now I'm gonna be doing some stuff with TV and snapchat and tick tocking of scaling tick tock ads And these are, these are platforms that are very view through heavy, they're very difficult to measure.

There's not a ton of click involved, but the beauty of measuring contribution dollars on a daily basis is that when I deploy this capital, I will see the impact right away. Now, maybe I won't see the impact on day one or day two, but I'll definitely see the impact by week two or week three. And I can make a very quick decision and say, okay.

I spent 10, 000 dollars and now I'm my, my daily contribution margin is, uh, or dollar ratio is 10, 10, 000 dollars less than the average. And it's continued to be 10, 000 dollars less. It's probably not an incremental expense, you know, so 

[00:37:14] Jon Blair: I love that. I love that 

[00:37:15] Bryan Cano: super methodical and very, um, intentional with your media buys versus kind of putting it out into the air and relying on some sort of attribution tool to tell you what's happening.

You actually. 

[00:37:28] Jon Blair: Yeah, man, we're going to have to talk another time because, um, we're not going to get to everything that I've learned on, on the scaling ad spend front today. But let's just, let's just keep riffing on, on what we can hear. There's like three different things I want to dive into on what you just said.

I'm going to have to choose one. Um, okay. First off, it is in the world of attribution being just super challenging, right? And other issues like Shopify. I mean, sorry, TripleWhale has ad spend in their ROAS calculation. You have to manually know how to take that out. There's like so many issues with attribution platform tools.

Not that they're useless, but that, you know, fair warning. Know how to use them. Know what's actually behind the data, right? But given that that's the world we're in, post iOS 14, like, for Nood to be able to make it, it, incremental ad spend change, whether it's in a different, a new channel or within existing channels and come back and look at the daily impact to contribution margin dollars.

That is huge in terms of assessing, because at the end of the day, isn't that what matters, right? What matters is that the changes you make on the ad spend front, they either positively impact bottom line, which the best way to measure it is contribution margin dollars. Or they negatively impact it. So now you have to be methodical.

We can't make a bunch of different changes all in the same day and then assume that one of those is what's impacting contribution margin dollars, right? So you've got to be methodical about it. No different than doing a A B test that you run with some A B testing app, right? Um, but if you see contribution margin dollars heading in the right direction, heading up as you're making these changes and it's doing so.

in a positive correlation with these ad spend changes that you're making, then you can likely assume that that move is incremental to your bottom line. That's what Bryan is saying. Um, okay. So I want to talk about, I want to double click into the omni channel performance measurement. So that Nood we've, we've got Amazon and Shopify as, or we'll call it Amazon and meta, right.

As like the primary, um, Kind of like the primary drivers. Yes, Google. Google's a part of it all, right? Like you can't disconnect Google from Meta, but let's just say like we think about the businesses Direct being Shopify and Amazon and There's been a lot of messing around with ad spend allocations on the Amazon side of things, right?

And like, there's no doubt, no doubt, that like, Amazon, that meta is driving, that top of funnel spend is definitely driving demand on Amazon. And there's always been this question mark around like, okay, the PPC advertising on Amazon. Is it actually doing anything? Right? Or is it just all coming from meta and are we just basically like cannibalizing our margin by double spending by spending on the PPC side of things on the Amazon platform.

Bryan and Sam have done a lot of very interesting tests. But I want to talk specifically because this is something I would have never thought of. Um, you brought it up to me many times and I would say that we've had at least a few instances where it appears that this kind of theory you had is true. Um, Is validated.

Talk about the conversion signal. This theory you have about the conversion signal on Meta and how what you do on Amazon from an advertising ad spend standpoint might be messing with that conversion signal. 

[00:41:09] Bryan Cano: Oh, yeah. So, 

[00:41:11] Jon Blair: by the way, I'm gonna cut you off. This was next level to me. I think this is going to be next level to a lot of people.

And again, it's still a theory. We don't have necessarily empirical evidence, but we have data that shows a, a, a direct correlation. And so I believe it to be true. 

[00:41:29] Bryan Cano: So I think we need to start with like the. You know, the, um, things we, we absolutely know there is a market of people that will only buy on Amazon, right?

They are just, they, they just prefer it. They pay for prime. They want to get the most out of prime. They, they like the faster shipping or the, uh, the customer guarantees and protection. And so that group of customers will always be there. And then you have this sort of tranche of customers that exist, and they're kind of like.

Don't buy on Amazon. It's more of a convenience thing, right? But don't also buy from your site. And if you know, it's really wherever the best deal is. And then you have the tranche of customers that are like, eh, I don't really prefer Amazon. I'd rather just buy from the site. I'm comfortable buying from the site.

So those three tranches of customers. So these two on the extreme, the tranche that only buys on Amazon and the tranche that's going to buy on Shopify, they. They're there, they're going to exist. It's the middle crowd that worries me. And what we discovered is that when we play around, and this is almost, I don't even know if this was intentional.

I think it was accidental. We had to do this because of retail partnerships where we had a price match with our retailers. Um, so we're, we're in Best Buy and Target. And they were like, Hey, Your price on Amazon is a lot lower than our price on our website. What's the deal? So we're like, oops, sorry. So we raised the price on Amazon and, uh, that created a price variance.

So we used to have this price match right between Amazon and Shopify. And Amazon was about 30%, 30 to 35 percent of Shopify. Meaning that Amazon as a, and by this time we had already cut our ads on Amazon. So just buying proxy of Halo. Effect from our meta ads and all the awareness. The brand's been driving.

Um, 35 percent of sales would move over into Amazon when we increase the price. That number dropped down from 35 30 to 35 all the way down to like 12 to 15. So it nearly cut in half and the sort of a. A 30 price change will cause that. So then this raises questions like, okay, wait a second. What, what is this relationship between price disparity between the two channels and the percent of sales?

And we started to play around and test it. And this is when I started to sort of. Realize that, uh, whenever we drive more sales volume back into Shopify, you are protecting the conversion signal of your ad auctions and 

[00:44:05] Jon Blair: on meta, your meta ad option. Yes, specifically 

[00:44:07] Bryan Cano: on meta. And I think that's the most important, right?

So you have a business that we know is driving a halo effect from, you know, from meta ads to Amazon. We know that a percentage of those conversions that meta is driving are. Not being given back to the platform. Um, you know, as as conversion signal and I'll, I'll, I'll tap into that in a second. And we know that meta is your, is your primary sales engine.

So we kind of, I kind of came to with this philosophy of we have to protect ourselves engine. We need meta to to realize that the ads that it's serving to all of these people. That they are actual buyers so that it can get better at finding next tranche of buyers. And my concern was, um, because then we, we started to play around with price and they're like, wait, but there's more margin on Amazon or there's less margin on Amazon.

And my concern was that all like this tranche of people that should be buying on Shopify are now buying on Amazon. There's a few concerns there. One, the obvious one is I don't own those customers. Amazon does. Those are Amazon's customers. They keep the. Personal identifiable information, I don't, um, so any email addresses, if I want to do remarketing or anything like that lookalikes, that's all gone.

But more importantly, um, the conversion signal on meta. I have this theory that basically. If meta is serving the ad to the right customer and then that right customer is not buying right in meta's eyes It's because you're buying on amazon not in there because they're buying on amazon It's gonna think that this is not the right customer needs to go and experiment and try to find other pockets of customers instead Again meta operates on an o cpm auction.

It's an optimized cpm auction meaning The price is dynamic. It, each user is a different value based on the propensity of that user, the confidence of that user to actually convert for your, for your site. And so, um, the closest I got to actually measuring this was we basically dropped the price back down to price matching.

This was around December and January, and then we like raised the price back up. And I did see an immediate boost to conversion to Metas conversion rate and Metas ROAS. I think we were, you know. I can't give numbers, but it was like about a 15 to 20 percent improvement in row as week over week from whenever the price was the same and those people were buying on Amazon to when we increased the price, obviously that's because those people are buying.

And so the, the platform believes it's a higher row as, but if you've got different bidding strategies or you're trying to optimize for return on Aspen on metas, Uh, auction having that signal is going to be crucial to to effectively media buy, especially if you have media buyers that aren't close to the business to the financials, right?

Like I had the luxury to look at the business and say, Oh, yeah, this is the impact. But if you've got agencies or you've got people that are a bit more separated from the finance, they're going to legitimately think that the row is that they're seeing is bad. And they're going to make bad decisions, wrong decisions.

I should, I should say on which ads to pause or scale because the signal isn't being fed back into the, uh, into the ad auction, 

[00:47:27] Jon Blair: man, next level advice for the people listening right now. Now, again, this is a theory. Don't, um, spend all of your dollars on feeding the meta beast and then come back and send Bryan really angry emails that, that he was wrong.

But I, I think it's important to share this learning. This might be happening to you if you have both a Shopify and Amazon store. So definitely something to think about. Definitely something to think about. Not all sales are equal and understanding how the, the meta algorithm works is super, super important.

That's one place where Bryan knows a lot. 

[00:48:01] Bryan Cano: I think. Well, you just said there's probably the most important. I think this is that in that next level of progression, right? And continuing to get better, not every cell is equal. That is that's important across all channels of your business. So Amazon versus Shopify, do you have a lower or higher return rate between one or the other?

Right. Keep in mind how that contribution margin formula is calculated. Returns go into that. So if your return rate is higher, On one channel, and it's significantly lower on the other channel, the contribution margin ratio between those two channels is going to be different. One of those channels may just inherently be more profitable to acquire on than the other.

Maybe shipping, if you're in like beverage, shipping on Shopify is going to be, is going to kill your margins versus shipping on Amazon. There is no, you know, it's FBA. So think about those. And then not just that, but Um, also like meta ads versus Google versus TikTok, um, or even email and SMS, right? Like, do you have to send out three emails that have little images that eat into your margin for, uh, or, sorry, uh, text messages that eat into your margin to acquire a customer?

Or can you send a plain text email to acquire that same customer that's gonna have a difference in your margin? And you're in your, uh, your contribution margin ratio. Same with meta ads for TikTok ads, especially if like we have to offer 20 percent off on meta ads, but on TikTok, we can do it through shops and TikTok is subsidizing the discount for us.

So we have a higher margin there. So I think like we've done an exceptional job at looking at a channel holistically and even at channel level between Amazon and Shopify. Um, I am now getting curious and going down to like the chat, my acquisition channels and saying like, okay, meta versus tick tock.

Where can I like squeeze more profitability out of this and how like, How to not get misguided by a higher ROAS number because the ROAS number may be higher over here But the margin may actually be lower versus this one. The ROAS is lower, but the margin is higher So thinking about it that way I think is uh, is is key as well.

[00:50:09] Jon Blair: All right, everyone This was a master class in scaling ad spend again without mentioning specific numbers Bryan over his career, uh, he's managed millions of dollars of ad spend a month himself. Right. Um, not a lot of people can say that. And so these learnings are coming from someone who's been in the trenches.

Mind you not, not all easy. I've had plenty of Bryan has had plenty of sleepless nights and I mean, it takes dedication and you have to roll with the ups and the winds as much as you have to roll with the downs and the valleys and like Um, again, it's not all up into the right, it's stairstep. And I would even say it's probably a little bit more like the stock market.

You got to retreat sometimes and then stairstep back up and then retreat, but you're always retreating hopefully to a new floor that's higher than your previous floor. Right? And so the scaling of ad spend is a journey. If you want to be holding it within the profitability constraints that you have as a business, keep in mind.

Nood is completely bootstrapped. Like they, they, there's a small amount of capital that the founder, Sam started this business with. And other than that, just lines of credit that I've helped the business get, um, that they've scaled to very healthy eight figures. So, um, if you're, if you want to, if the lessons you're learning here are from, you know, Bryan, you're very humble, so it's okay if you don't agree with this, Bryan is a ad spend scaling guru.

Managed millions of dollars of ad spend a month for many years and has helped scale a bootstrap brand to that point. So super, super, Um, again, just like a PhD masterclass here on like some of the do's and don'ts, um, of scaling your ad spend. Before we end, I'd love to just have you share with the audience because I know you personally that you're like a lifelong learner.

What's something you're reading or listening to or learning right now that has just like really really been impactful for you recently? 

[00:52:14] Bryan Cano: Wow, um Hmm,

I think right now the where I'm most interested is in Um, obviously as, as everyone is, but I think really more in terms of how do I productize some of my learnings and ideas and not productize it to sell it, but productize it in a way to like, help me. So I've been playing around with a lot of the, uh, GPTs and watching a lot of YouTube videos and.

I'm putting that to the exercise, so I have all my training manuals from when I was a manager of media buyers and all of these, like, data samples and I'm feeding the GPT and I'm basically looking to train it to, in a way, try to it. Clone my brain, if you will. That's so cool to the point. I've got it to the point now where you can export your data and you can upload it into the GPT and it'll tell you.

Here's what I'm seeing. Here's the optimizations you should make. Um, and basically, it lays out a test and learn for you with, like, next steps based on the data. So you give it, like, creative level data or ad set level data, and it's. It does this. It's not always a hundred percent. I'm still tweaking it, but, uh, that's been kind of this like little hobby or it's becoming a hobby is how do I, uh, train an AI to think like me as a, as a, uh, marketer and media buyer.

[00:53:36] Jon Blair: Dang, I'm going to have to get into that. I'm going to be picking your brain on that outside of this. Um, so lastly, where can people find more info on what you guys are doing over at Nood? 

[00:53:47] Bryan Cano: Yeah, uh, LinkedIn's always the best, uh, it's just my name, Bryan Cano, C A N O, um, is my, is my LinkedIn. I'm also active, pretty active on Twitter, uh, or I should say X now, so that one just, um, it's got my middle initial, my first name, middle initial, E.

And then last name C. A. N. L. So you can find me on Twitter. Um, and Twitter. I don't really talk about Nood specifically. There will be some anecdotes here and there, but it's mostly just like, here's like what I'm seeing some trends. Um, and then, you know, I'll be at the Whaley's in April. I'll be actually be, uh, speaking with.

Uh, Nick and Moyes, um, on the limited supply podcast, so you know, you can, you can catch me there, but, uh, yeah, I'm pretty accessible online. And if there's any questions or, uh, you know, just have 1 perspective on something, I'm always available to help out on over DMS. 

[00:54:43] Jon Blair: Awesome. Well, I know that everyone got a lot about out of today's episode.

I appreciate you joining Bryan and, um, until next time, everyone keep scaling on. It's a journey. There's ups, there's downs. Um, but hopefully this podcast helps you, um, be able to endure through some of the challenges of scaling your ad spend that much better than you're able to do before you listen. So until next time scale on and chat with you guys soon.

How Elite DTC Brands Measure Marketing Performance

Episode Summary

In this episode of the Free to Grow CFO Podcast, host Jon Blair, founder of Free to Grow CFO, engages in a comprehensive discussion with Ryan Rouse, advisor for growing consumer brands and co-founder of Factor and former CEO of Highkey. They dive into strategies for scaling direct-to-consumer (DTC) brands with a focus on balancing marketing efficiency, growth, profitability, and cash flow. Ryan shares insights from his entrepreneurial journey, highlighting the importance of understanding unit economics, contribution margins, and the realities of scaling a business sustainably. With an emphasis on profitability and cash flow, they explore the nuances of business finance, marketing measurement, and the challenges and opportunities of going omnichannel. This episode provides a deep dive into creating value in DTC brands through economic viability, offering a blend of high-level strategy and practical, actionable advice.

Meet Ryan Rouse

Ryan Rouse is a growth advisor to consumer businesses with a focus on every line of the P&L. He was previously, Co-Founder at Factor Meals (acquired) and CEO at Highkey.

Episode Transcript

00:00 Welcome and Introducing Ryan Rouse

02:43 The Entrepreneurial Journey: Challenges and Learnings

05:44 The Transition from Operator to Consultant

13:37 The Importance of Understanding Your Business Model

14:13 Deep Dive into Marketing Performance and Profitability

25:21 The Nuances of Customer Acquisition and LTV

28:43 Decoding LTV and CAC: A Deep Dive

30:51 The Importance of Contribution Margin in Business

33:34 Navigating the Buzzword: Understanding Contribution Margin

34:15 The Significance of Defining Financial Terms in Your Business

42:19 The Transition to Omni-Channel: Strategies and Considerations

49:21 Final Thoughts

[00:00:00] Jon Blair: All right. What's happening, everyone. Welcome back to the Free to Grow CFO podcast, where we talk all things, scaling a DTC brand with a profit focus mindset. I'm your host, Jon Blair, founder of Free to Grow CFO. For those of you that don't know, Free to Grow is an e comm focus, outsourced accounting and finance firm.

We help scaling profit focus DTC brands scale alongside healthy profit cashflow. And confident decision making. And I gotta be honest, the conversation we're going to have today, I've been super excited preparing for we're chatting with Ryan Rouse. Some of you guys might know him as co founder of factor, former CEO of High Key, he's now a consultant for growing consumer brands.

I'm super excited for this conversation. Ryan, welcome. And thanks for joining man. 

[00:00:48] Rya Rouse: Thanks, man. Excited to be here, Jon. This will be fun. 

[00:00:50] Jon Blair: So for today's topic, I mean, here's the thing. I feel like you and I can chat about any number of things when it comes to scaling a consumer brand in the DTC context.

I've kind of got earmarked like for us to chat about this balancing act of marketing efficiency, growth, profitability, but then also cashflow. And the reason why I think you're, um, the reason I consider you an authority on this topic is because. You've got this multi dimensional background of being in the trenches as a co founder of a consumer brand, right?

Um, an operator in that brand, not just a founder, an operator of High Key, and actually you've also held several executive positions. in consumer brands as well, and also had a nice little stint in the investment world, CEO sitting on, um, as an operating partner in a PE firm in the space. And interestingly, a, in my opinion, a super talented marketer, but you can talk shop on the realities of like one, the messiness of scaling a business and two, the, the, the connection back to ultimately what matters the most.

Profitability, cashflow, building a business that actually generates value through generating economic value in the form of cashflow and profitability. And so because of all those reasons, I'm really excited to dive into this topic before we get into the weeds of chatting about some of these things. I just, I really want the audience to understand your background and your entrepreneurial journey and what's brought you to this point.

Uh, cause I think that will really help them understand the diverse perspective that you have on scaling a consumer brand. 

[00:02:43] Rya Rouse: Yeah, for sure. So, um, you know, I spent 13 years in finance. I'm four. I just turned 45 actually two days ago. So when I graduated college, entrepreneurship was not fun and sexy and new, right?

Everyone did consulting and finance and all these things. So, um, so I, I, I grew up in finance and, um, 2012, a friend of mine came to me with an idea for a business, healthy, prepared meals delivered to your door. Fairly ubiquitous. Now, it was not at the time and we certainly didn't know anything about it. So I dove into Entrepreneurship startup operating Through that lens and through that experience, you know him and I he had had the idea for this business he had done a lot of legwork in terms of Figuring out what the business was going to be and doing some branding work on the business But we hadn't launched the business yet.

So he called me bring brought me in and It was trial by fire. You know, we, we did raise a little bit of friends and family money, you know, admittedly, like institutions weren't interested in the space at the time. We could go into why I think I'm grateful for that. It made it much more challenging.

Certainly. Right. We used a lot of our own money and we used Uh, friends and family money, but we had sort of this proverbial two year convertible note open that was, you know, we were just sort of piece mailing money into it and then we were covering the rest ourselves. Um, so, so I spent five years in an operating role in a, in an early stage startup where we were underfunded the entire time and that's relevant because we couldn't really hire experienced people.

Right. So I think again, same point I'll make about. You know, the lack of ability to raise outside institutional capital is we were forced to use our own a lot of our own money. We're always short on money, and so I'm grateful for the experience. I can't tell you confidently that had we. Raised 10 million, 5 million out of the gates that I would have had the same mindset about profitability bootstrappers mentality, I guess, is the best way to put it.

I can't confidently say I would love to sit here and say, yeah, you know, had we raised a bunch of money, I still would have been very diligent and used rigor as a, as it relates to spending money. But I can't say that. I don't know that. And so. It made it more challenging for us. Uh, we were certainly, we're low on money the whole time, but on the flip side, I learned every element of the marketing tech stack myself.

I, at one point was running our ads, Facebook and Google learned SEO, learned email, learned content. Um, and that wasn't fun looking back. It sounds like it was, and I'm grateful for it, but, but you're grinding, you know, you're doing all those things yourself and you're doing it without a lot of money, right?

Um, so, uh, I left that business the day to day that business in 2017, it did go on to be acquired at the end of 2020 for almost 300 million. So an amazing outcome, but it was, it was a grind for the entirety of the five years that I was there. Um, And then since leaving the day to day I have, to your point, I've taken, I've done a lot of consulting with a lot of omnichannel consumer businesses across all different categories.

I have taken three leadership roles. One is the head of growth at a healthy baby food company called Serenity Kids. I was the CMO at a company called High Key, which is a low sugar cookie company, Omni China business, mass retail, as well as e comm, uh, spent a year as an operating partner at a private equity company that was investing in digitally native consumer businesses, helping them scale into retail.

And then most recently was the CEO of the aforementioned High Key. Uh, so I spent seven months as the CEO of High Key. So to your point, like I I'm, it's a, it's an interesting background. Right. If, if you were to go talk to a recruiter and say, Hey, what's, what is Ryan the perfect fit for? I think they might be a bit confused about what I'm the perfect fit for, but I'm grateful.

I do think, you know, at this point, as you're thinking about your career, it's sort of, in my opinion, you're trying to get a. Fully rounded perspective. And I don't think you ever get there, right? It's a dynamic game. The game of business isn't, it's not conducive to saying I know all things from all sides that that's a farce, but I feel like I've got a really good perspective and had looked at it from multiple angles, both from the operating side, the bootstrapper side, the entrepreneur side, the investing side, you know, and then different roles inside businesses.

So I've, I've, I'm. Grateful for the different lenses I've been forced to view businesses by because I just think it helps, you know, in the totality of how you view things. 

[00:07:21] Jon Blair: I love it, man. Um, we, we, you and I certainly don't have the, obviously the exact same background, but coming from the early state, like working in house at early stage, um, startups and being on the founding team and guardian bikes, a lot of very similar stories.

Almost all those companies being very underfunded the whole time and looking back the range of skills that I learned because I was originally trained as an accountant. Um, most people don't know me as an accountant today. I'm much, most people know me as an entrepreneur today, but why? Cause when you're, when you're part of founding teams, You have to have range.

Like, yeah. What did I own the finances of these companies? Absolutely. But did I get involved everywhere? Yeah, we had to, cause we didn't have enough money to hire everybody else. Right. Um, and I actually would agree with you that was it all fun? No, it was not all fun. Am I grateful for it? A million percent, right?

Like I would not have the perspective as a finance professional that I have today. If I didn't have that entrepreneurial experience, the way I like to explain it to people is that like. I was getting a PhD in what it actually takes to scale a business, right? And that's all kinds of things outside of my primary, like what I was primarily trained to do, which originally was accounting.

And so, um, it's really cool, man, because You know, when I think about the consulting world, which you and I are now both in, in this season of our lives, right? The consulting world, you and I know this from being on the operator side, I've been screwed and overcharged by every consultant you can imagine.

Marketing consultant, strategy consultant, supply chain consultant, spent tens of thousands of dollars or more and felt like I got no value. And one thing that I always tell brands that I'm talking to on sales calls is like, Hey, We're a small boutique firm. There's only about seven of us. Everyone has worked on the brand side before.

So we are not out of touch career consultants. We have been in your shoes and we actually know that there's nothing worse than a consultant giving you this plan that like, it sounds so amazing on paper, but on the other side is the operator. You're like, That's not possible. That's not practical. I can't implement that.

Like you don't, you're so out of touch with like the reality of like my actual problems. Like, can you speak into that a little bit from your perspective? Like literally your background is being an operator. How does that position you to be that much more of a valuable person? Consultant given that you know what it's like to be in the shoes of your clients.

[00:09:59] Rya Rouse: Yeah, I think it's really important. I'll take a step back and say, you know, one of the problems, one of the issues we had when we would hire the wrong person, whether that's a consultant contractor agency, full time employee is not being crystal clear on what we were looking for, what we needed in the business at the time, right?

It's very easy. I think in this world of. Of creators and LinkedIn and Twitter to follow people with large audiences and to place a large amount of credibility on them strictly for the size of their audience rather than their body of work. And so you, you go into a conversation, you're sort of so happy to just be on the phone for as, as funny as that sounds.

It's true. I'm on the phone with this person who I looked up to. They have this large audience and I just want your help. So and so. As opposed to being very, very clear on like our needs at this business, in this business at this time are right, this very clear about what we're looking for and then asking, you know, and then seeking out the solution to that.

So I think that's, it's an important takeaway is to just, I, I always, every time I'm on a call with someone is to just. Is to push back on them to make sure they know what they're looking for. Now, to your point, yeah, I think it's really, really important. It's certainly an early stage, right? What a, you know, what a fortune 100 company right now want more of like the Deloitte consultant that's looking at a full blown implementation of an ERP system or me, probably the former, but if you're talking about a sub 150 million.

Company that really wants scrappy tactics and high level strategy combined at the same time. They want that from someone that's been in the weeds in those businesses, because the challenges that have 150 million and below business faces is going to be wildly different than the Nike's of the world.

Right. So, so yeah, I think, I think it's all about the type of business and what their needs are, but certainly, um, certainly putting the reps in, in this situation. Of the company that you're going to help specific to the needs that they're trying to solve is going to be a much better solution than someone that's just never done it before.

[00:12:20] Jon Blair: Totally. I am 100 percent agree. And you know, for me, the space that we sit in, um, at Free to Grow CFO, you know, we help scaling DTC brands between about five. And about 65 million in revenue. And like that, that stage, that lower to middle market, you really need to be in touch with the actual challenges that that brand is experiencing across the business, because it is this, I mean, every stage of business is hard.

There's not a stage of business that isn't super freaking hard. Right. But like that stage of business is especially hard because you're literally The way that I like to think about it is, you know, the concept that the scientific concept of like, you know, uh, cell multiplication, right? And like that multiplying going from like one cell and splitting apart into two and then splitting apart into four.

And then it's painful. It's so painful, right? And all the while, Your business is not running the business. The operation serving your customers. That's not getting any easier. It's not getting any slower, right? And all the while you're literally building the plane while you're flying it. So anyways, I think that's super awesome.

A lot that we relate to on that level. And I think super valuable for brands in that lower to middle market that we serve. I want to turn our attention now to talking a little bit more about marketing performance. Um, as it relates to profitability, it's, um, a spot, it's, it's a con, it's a topic that I've had several interesting conversations with you on.

Um, and it's also, it's obviously front and center in the world of digitally native brands because of the challenges, the increasing challenges of scaling a digitally native brand through digital advertising and other channels. In a manner that's profitable. What are the big mistakes you're, you're seeing out there that brands are making when they're thinking about attribution and or just marketing performance measurement in general, that's maybe leading them in the wrong direction to make wrong decisions as it relates to profitable marketing.

[00:14:33] Rya Rouse: Yeah. I think the first one. You know, and, and, and this is largely changing, but you know, we're, we're on the back end of a, of a consumer bubble where, you know, for a very long time, institutional dollars, certainly venture capital wasn't coming into consumer brands. Right. And then when venture started coming in, and this is not placing blame on anyone.

This is the, the facts are 

[00:14:57] Jon Blair: venture 

[00:14:57] Rya Rouse: capital is not interested in consumer. And so consumer businesses had an, a playbook that was very old school. And I mean, old school in the best way, right? Profit first managing margin profile and understanding that self sustaining business is your path to success.

Towards optionality and optionality is your North stars of business. In my opinion, right options. The only way you have options is if you can say no to something that's presented to you and still thrive and still grow and still make it and still succeed. So for a long time, venture capital wasn't interested than they were.

And when they were, they were very, very interested, right? And so you have a lot of money flood flooding into consumer businesses. And again, I mean, it's very easy to place blame on venture capital or investors, or even on, on the bubble itself or on direct to consumer for that matter. None of those are at fault for anything that happened.

Everything is at fault for everything that happened recently, which is we lost our focus on profitability. Easy to say that obviously, but I think there's, there's a difference between, let's use one specific example. So it's not so vague, one big, big problem that arose because of that was this idea of payback period, right?

You would hear, I remember one of the first people I ever. Started learning marketing from was Ryan Dice from digital marketer when I started when we started factor And I didn't know anything about digital marketing. I found digital marketer comm which is a brilliant URL And he's a brilliant teacher and that company did a very good job of just training people who knew nothing about digital about how to think About digital you have to keep in mind that They were largely not looking at e commerce businesses, consumer businesses, direct to consumer businesses.

They were, they were thinking about services type of businesses, right? And so one thing that I remember him saying was he or she who is able and willing to pay the most to acquire a customer will win. And this is, this is, this is a truism, but it's nuanced like everything else, right? So if you take that as fact blindly without peeling back the layers of the onion, you say, Oh, I should be willing to pay as much as possible for a customer because that's how I grab market share.

The nuances there are that cashflow matters and that profitability matters. And so one huge mistake I certainly saw throughout the bubble was. People and brands and companies and operators taking that as without the nuances that matter, meaning, Oh, I should just pay a lot to acquire a customer, right?

Well, first of all, you have to know what your customer's worth in contribution, margin dollars, and when that money comes, right? So a standard LTV curve, your LTV is 800, but it takes two years to get it. Well, you first of all have to strip out all the variable costs from that. And then you have to understand that that 800 is really only 300 over two years.

Okay. You can't pay even 150 to acquire that customer if you don't get paid back for 12 months. Not in a consumer business, right? Because cash flow, as you very well know, and many who are listening to this will know, the challenge, one of the biggest challenges with consumer businesses is the cash flow element.

You have to buy inventory. You have to buy it ahead of time. You get paid. Paid late from certain customers. Right. And so your cash conversion cycles really, really critical. So, so I say all that to say like you have one of the big mistakes that I, that, that I constantly seeing being made is taking these.

Statements about things that are actually true. Like that's a true statement. He or she who's willing to pay the most to acquire a customer will win. That's how you grab market share, but not applying the nuances to their business. And in a consumer business, that's cashflow, that's inventory, that's understanding your customer unit economics.

So overall point being, you have to understand how much your customer's worth when that money's coming in and whether or not you can handle. From a cashflow perspective, paying X, Y, Z, right? X amount to acquire a customer on paper. If my customer in contribution margin dollars is worth 300, I should be able to be, or be willing to pay 150 in a silo.

But if I don't get paid back for 15 months, it's a dramatically different business model. That's not tenable rather than if I get paid back in three months, that is potentially tenable, right? So all, all of it has to be specific to your business is just take this high level sort of guardrail advice that you get, understand that even if it's true, it may not be true for your business or said differently.

You have to apply it to your business and then you really have to get into the nuances because, you know, a tweet that sounds really good and a bunch of people are, are, are commenting on it about how true that is, is only true if it's true for you. 

[00:20:08] Jon Blair: Totally. And you know what? So one side note, I don't want to get us on a tangent here cause I want to come back to several things you said there that are really important, but one of the issues with short form content is that there are only so many characters, right?

That someone of influence. can make a statement with. And I've even, you know, you know, you and I both have our own LinkedIn content. Um, and one thing I've actually started to say is make one of these general statements because it's true, but I'll say later on in my post, there's nuances here. And like my goal in this post is not to draw out all the nuances.

It's to make a statement about something true that I want to get people talking about. So, But I will be humble enough to let you know there are nuances to this. And if you want to discuss the nuances, let's take it off LinkedIn, right? Because there's just too much nuance to talk about. But I've started to do that because I don't want to mislead people because I have seen influencers out there.

I don't know if they're doing it on purpose or not. I think some of them are. Some of them are not. But I've seen influencers mislead people by making these generally true statements. And not make the a a the sub statement that like, there's nuance here, so be careful about how you use this. But that's not the goal of this short form post.

Right? That's 

[00:21:31] Rya Rouse: right. 

[00:21:31] Jon Blair: That's right. But that aside, I wanna dive into contribution margin a little bit more. Um, 'cause you brought up, you brought up a couple things that are, that I see as a fractional CFO for scaling D two C brands. I see time and time again. One is brands not operating with a financial model, right?

And so, uh, when I say financial model, I mean a projected PNL and balance sheet and cashflow statement, what we in the finance world call a three statement financial model, right? And what's important reason I'm bringing that up is because you brought up several times. Hey, yeah, profit profit, but cash flow, right?

Those things don't ever equal profit never equals cash flow It never does especially in a consumer brand that's capital intensive requires inventory investment, right? Um, but additionally You can't optimize only for unit economic or, well, I won't say unit economic. I'll say marketing tactic decisions.

You can't optimize for a single piece of that just for order level profitability. You have to run it through your model and go, can we float this cashflow wise? Like given our capital structure, how much equity cushion do we have? What debt do we have available to us? And how many days of inventory do we have to hold at any point in time?

And so something new. that I almost most of the brands that we end up encountering in our sales pipeline at Free to Grow CFO, like all 99 percent of them don't have a three statement financial model. And that tool is so foundational in being able to see, I think, I think a lot of brands, at least, If they say they have a forecast, it's usually just the P& L, the ones that we encounter.

And that added dimension of cash flow and balance sheet are like, there, you have to see all three of those dimensions. If you don't, you could optimize for something on the P& L that totally screws you up somewhere on the balance sheet or in your cash flow. And then the other thing that you mentioned, which goes along with this, is like, the timing of, Your LTV coming to reality, right?

That like, what is that period? And the reality is the way that I try to explain it to brands in simple terms is like, look, if the LTV gets paid back over a longer period of time, you need to have the cash reserves to basically operate unprofitably on that customer base for that period of time. Right?

And so if I take some of our more profitable brands. That can that, you know, maybe have 20 to 25% EBITDA margins and they're doing 50 million a year in revenue. Well, at that profitability, they have cash reserves that they can afford to not get paid back fully by a, a customer's LTV for maybe 90 to 120 days.

But if I've got a brand doing 5 million and their EBITDA is 5%, they've got very little cash reserves to operate unprofitably for even 30 days. On on a new customer, right? They literally need to generate their minimum contribution margin dollar target on order number one. Um, you know, what, what, what other, uh, what other nuances do you think about if you're sitting down with a brand?

You've kind of run through your diagnostic, right? Um, what are some of the just other areas that you talk with them about or levers that you talk to them about that they need to consider when they're thinking about how profitable they need to be on a first order versus, you know, getting paid back, um, by LTV over time?

[00:25:20] Rya Rouse: Yeah. Yeah. Let's back up to your LTV. Cause I think there's so much important stuff inside of that. And again, we'll, we'll circle back to this. Sort of very short statement that has truth to it, but is missing nuance LTV to cap, right? This, this thing that largely SaaS businesses sort of made popular and then venture came in and said, Hey, this is, we will judge your business model based on your LTV to cat fair.

Right. And what we're looking for, I literally looked this stuff up when we first started factor, right? You're in this, you're in this like information gathering mode. You're like, I literally don't know. Anything. So where am I going to find this information? Like, Oh, cool. Right. And what am I aiming for?

Three to one. Okay, perfect. Three to one. All right. Well, SAS different than this different than consumer, right? SAS going to have a large upfront fixed cost and then low variable cost over time. So an LTV to cat in general for a SAS business relative to a consumer business is going to be, should be. Is wildly different, but let's just say three to one works and you say, okay, I'm, I'm optimizing for three to one and you've seen a ton of decks in your day.

So have I, and they say our LTV to CAC is three to one. Okay. That doesn't mean anything, right? A non time bound lifetime value. Let's just dig into the mistakes of lifetime value. Cause cause to answer your question, a lot of it is around how they're viewing their business model. Right. Are they viewing it in the appropriate way?

And not that there's one way to view it, but there's certainly wrong ways to do it. So if you say our business model is sound, our LTV to CAC is three to one and period. Like that's not enough. How long does your LTV take to materialize? First of all, how are you defining LTV? LTV in a revenue basis. I view LTV from a revenue perspective as a measure of retention, not as a measure of business model sustainability, right?

If you are seeing your LTV on a per customer basis grow over time, you have good retention. There's certainly other retention metrics, but if you just had one metric and you said, hey, how are you going Judge whether or not this company has retention LTV cohorts are the way to do it to me. If you could only pick one, because you're looking at how much was the average customer in a cohort worth on their first order.

And then what were they worth at three months, six months, nine months, 12 months. And is that growing, right? Because in consumer ALV is not going to move wildly. Yes, you can do a lot of things in order to increase your ALV, but generally speaking, certainly on a consumable. But most consumer businesses, ALV is going to stay within a relatively tight band.

Therefore, you can't have a low percentage of customers making your LTV grow over time, right? There's going to have to be a good subset of customers that are adding orders regularly in order for your LTV to grow. So to me, the LTV on revenue and how much it's growing over time is a retention. Litmus test, not a business model litmus test.

So that's one. So we're talking about how do we judge, like, how are we defining LTV? LTV is a, is a gross margin number at, at worst or at best, however you want it to find that it's not revenue, right? If you're looking at the business model, you're saying our LTV at the fully loaded gross margin. So that's product cogs, fulfillment, delivery for a e com business.

How much is, how much is there are customers bring to us after all the costs associated with getting it to them before marketing. Now you put that number relative to CAC. And then that LTV number has got to be time boxed. So you say our 12 month LTV LTV is defined as lifetime value of a customer on average, from a fully loaded gross margin, gross profit perspective.

This is how much they're worth in 12 months. Over how much we pay to get them. That's a much better, right? So I would say six month LTV to CAC from LTV being gross margin fully loaded. And then our CAC, that is a more of a business model question and answer than just a, a, you know, a non time bound LTV.

That's a revenue based number over your CAC, because that doesn't give you any indication of like your margin profile of the business. You know what I mean?

[00:30:06] Jon Blair: First off. Brand founders and operators listening to this, Ryan just gave you like a mini masterclass on how to think at, in my opinion, a very sophisticated level, um, about thinking about marketing, um, measurement. Now, to be clear, I think you would agree with me, Ryan, these concepts aren't super technical.

They're not super hard to understand. It's just that what, what Ryan's breaking down here. I would say the, the upper echelon of, of marketers are thinking in this way and a lot of other people, I would say that the masses are thinking in the way that Ryan's telling you not to, in terms of like thinking about LTV at just a gross revenue basis.

Additionally, one thing that I've recently started saying, Ryan, and this is actually because it's becoming a closely held belief of mine. is that contribution margin is the real top line, right? And for us, we use slightly different terms in Free to Grow. Um, we have gross margin is just landed product cost.

What we call contribution margin before marketing, which you're calling fully loaded gross margin is basically backing out all. Yeah. Non product cost basically the, the, the variable costs to get the order fulfilled, right? And then we back out marketing and that's our contribution margin after marketing but like Contribution mark, uh contribution margin dollars.

That's your real top line because Generally speaking, top line revenue somewhat means nothing from, from a bottom line profitability standpoint. If you're not charging against it, the per order or per unit costs that get deducted from every dollar of revenue that you generate. So really, contribution margin dollars that are left over to cover your fixed overhead and then contribute to bottom line.

That's really your top line. And I think that interestingly enough, I come, like I told you at the beginning of the show, I come from an accounting background and I was the rebel. I went, I didn't go big for accounting. I went straight into being an entrepreneur and working with startups. And I eventually did get a certification.

In the CMA certification certified management accounting and what most people know the CMA certification for is cost accounting. Um, it's actually turns out to be a lot deeper than that, but that's what it's known for. And this concept of contribution margin used to be when I took the CMA exams 15 years ago.

Um, that was a, that was a concept that was left for the cost accountants in the world at that time. Like you didn't have CEOs and founders of brands and lower to middle market talking about contribution margin. It's become a buzzword since. Yeah. And so, so for us, we're not talking about anything new in the finance world.

Contribution margin has always been a staple, right? Um, in the way that we model and we think about, uh, we think about a brand's margin profile and ability to break even or generate certain profitability, but it has absolutely become a huge buzzword, I think, partially because of the Investment dollars in the space drying up and brands needing it by necessity.

It's a necessity to become profitable and internalizing the concept of contribution margin is a necessity to understanding your profit equation as a consumer brand. But what I want to chat about really fast is like this buzzword, right? It is super, super. important to understand contribution margin, but I'm seeing a lot of people take advantage of this buzzword.

And actually I don't believe they understand what it means. And it goes back to your comment about like making a generally true statement, but worse than the fact that there's nuances. The person saying it doesn't even actually get it. Um, they're just claiming to get it. Are you seeing that? And if so, like where, where, like, where, where are you seeing that?

[00:34:08] Rya Rouse: For sure. I mean, absolutely. You hit on a couple of things that are important to hit on, uh, or, or to discuss. One is There's a lot of different terms for the same numbers. That's, that's an accounting and finance generally thing, but like, certainly as you get into just public discourse about business, uh, there are multiple definitions for the same term.

So it's important to just understand how you internally at your business define certain things. To your point, like. You know, gross margin, one gross margin, two contribution margin. I've seen our head of finance at companies I've been at. That's how they described it. Or, you know, uh, gross margin fully loaded, right.

Or gross margin, direct gross margin, indirect. So, so, so removing all that, just understanding that there's, there's multiple ways to do that. If I'm thinking about a business, the earliest business books I ever read, We're generally not talking about consumer businesses and definitely not talking about e commerce channel consumer businesses because it wasn't available.

And so I think one of the most important things I ever read was, let's just use, let's just define quickly for what we'll talk about here, gross margin, right? So. You have your gross revenue, net out your returns, and your, um, discounts. Then remove your cost of goods sold, the product, right? Then for e commerce, you do have to remove shipping and fulfillment.

That's not gap gross margin, but that's just, if you sell an order, right? What will you take home before marketing before overhead, before anything, what is coming to you and what's coming to you is the revenue. You got less, any returns and discounts, less the product costs, less the shipping and less the fulfillment.

So that's what's coming to you. Let's call that, just for this conversation to make it easy, gross margin. It's not according to GAAP and it's not according to the way a lot of people define their P& L. That's fine. Let's just call it that for now. The best business book, books I read originally, I remember saying all this idea of like, Hey, one million dollars per employee, right?

Is as a framework for how many people should I have on my team? It was like, Oh, a million dollars per employee. That was sort of like a widely used metric. I remember reading a business book very early on that said, we're talking 1 million in gross margin dollars per employee. The money that comes to you, that's a very, very, I'm not saying that should be your metric, but I am saying like, that's an, that what's coming to you is very, very different than what you're being paid for it.

So you have to be conscious to net out all of the things that are not going to get into your bank account before you spent money to acquire these customers. You have to understand what that is. So you have to understand how you and your finance team are defining your P and L and not get. Confused by anything that you're reading online or, or anywhere else about how they're defining certain numbers, you know, how you define certain numbers and then don't get caught up trying to redefine your numbers internally.

Just know what you define them and isn't what they mean, but yes, group contributions. So then if that's gross margin for this conversation, then the only thing you net out of that in my world to get to contribution margin is. Advertising dollars and processing fees. Those are the only two other variable costs that will move up and down according to how many orders you get, especially in an online world and e commerce universe.

So if that's contribution margin dollars, I, to answer your question, yes, it's everywhere now. I'm glad that it is, but with the good comes the bad, which is that some people don't know how they are describing it or what they're defining or describing when they give advice. So the best advice for you as an operator is, Get with your team align as a leadership team and a fine in your head of finance.

What are you calling each line of the P and L? Let your finance team worry about the accounting portion of it and what needs to be submitted. That's gap compliant. You should understand that too, but like we're operating the business under these. This is how we define each line of the P and L and know what's included in each one.

And then know what the percentages of each of those are and what the trend of each of those are, right? What are your returns? And what's the trend? What is your discounting off of gross revenue and what's the trend? What's your product cost and what's the trend? What are your shipping costs and what's the trend?

What are your freight costs and what's the trend? And then what are your, your fulfillment I think is the last one. And then certainly marketing underneath that, but you get the point. It's like you define it, how you do internally at your company. And then you need to understand why they're defined the way they are, what constitutes each definition.

And then what's the trend of each of those? What is the percentage of those costs? And what's the trend of the percentage of those costs over time? And are they getting better or worse? 

[00:39:21] Jon Blair: I love that, man. Um, and honestly, you, you hit the nail on the head in so many ways. And what you were just talking through right now, one of the big things that we do as fractional CFOs for scaling DTC brands is we just go ahead and give the brands our roadmap for the chart of accounts and what should be included in each of those margins.

And then when, when, when the books are done every month, we hand them dashboards that we've built that trend out All of those costs that you're talking about, and so that way they understand if their contribution margin there's getting better or worse every single month, but they can see why which area of their variable cost structure is getting better or worse.

Right? Um, look, one thing I just want to say, man, I love, it's very clear the empathy that you have for founders and operators of scaling brands. Um, there's a lot of people who will latch on, like, there's a lot of people who will talk on these concepts and say, like, this is the way to do it. You are always in, in your content and conversations I have with you outside of this podcast, in this podcast episode, you're always going like, Hey, listen.

There's freedom to define things in a way that work for your business. Understand the underlying absolute concepts so that you know how to apply them in a nuanced manner to your business. You do have to understand that first. But there's nothing, in my opinion, there's nothing absolute in business.

There's all these rules that you have to understand and all these theories and concepts. They're tools in your tool belt. Right. But it actually is very similar to like, I'm a musician and one thing they talk about with jazz musicians, which are considered like in many, many, um, you know, many people consider jazz musicians to be like the creme de la creme of musicians.

What they'll all tell you is learn all the rules, learn all the scales, learn all the keys, learn all the modes and then throw them out the door. Right. And I look at the way that you approach business and that I approach business is very similar, which is, Learn all the rules cause you need the tools, right?

But then when you get in the trenches, throw them out the door and just grab them and nuance them the way that it works for your business. And I think that's, this is, I just want to call that out cause it's an important message for the DTC brand founders and operators listening to this episode. Like, you don't have to feel so constrained and so confined, right?

Like, yes, there's best practices. Know them. Because you want to know when to pull those out, right? Um, but don't feel like you have to do it like everybody else. And don't feel pressured by the prevailing messages in the marketplace that like, we've got to be doing things this way. Seek to understand these things.

Internalize them so you can break them down. Break the rules and build them back up in a way that works for you and your business and your business model. And I just want to call that out. Cause I, I love that about, about chatting with you and about the way that you approach giving advice to people. Um, so look, we only have so much time, so we're not gonna be able to get into everything, but I do want to chat about one more thing that I just think, I know you have a wealth of knowledge on, and it's something that's very top of mind for all the digitally native brands that we're working with a Free to Grow CFO.

Going omni channel, right? Breaking out into retail. There's a number of reasons why brands are considering it right now. There's a lot of brands that I'm seeing consider it, um, much earlier than I've seen in like, you know, previous years of, of the e com space challenge with scaling, uh, digital advertising profitably.

And so there's this allure of getting into retail to basically, you know, lift your blended marketing efficiency. Right. And, and, um, um, you know, find new channels to acquire new customers, but frankly, find new channels to convert customers who find out about you top of funnel on like meta or, you know, Instagram, Facebook, whatever, what, um, what is, when a brand comes to you and it's like, Hey, Ryan, we're thinking about going Omni channel, right?

We really want to break out into retail. We think it's the right thing. I know there's a ton of advice you could get in there with your background. But give me the high level of like how you would begin to advise a brand of the things they need to think about before they decide to venture into expanding into retail.

[00:43:39] Rya Rouse: Yeah. The, the irony is like, um, consumer was only in retail for the entirety of consumer until whatever, 2010, 11, 12. Right. And so, um, What we talked about when Venture came into D2C, D2C turned into a business model and not just a sales channel, right? I come, I learned this game on a D2C only business.

Prepared Meals does not have Omni Channel. It's not an option. So I was one of those people when I left factor, I sort of had this DTC lens. I was very emotional about it, loved it. This is how you grow businesses. But the reality is, if you look at the data, this is growing, but 20 percent of shopping is done online.

And of that. Half is going to Amazon. So you have to consider that if you are going to choose to stay direct to consumer only or direct to consumer plus Amazon, then you are wildly limiting your potential investor or customer base. That's okay. If you realize it, so I would say, okay, if you're going to stay without going into retail, that's fine.

You just have to understand what your top line revenue probably is going to be like where you're going to top out. I see a lot of beautiful 40 million online only businesses, right? I don't see a lot of hundred million dollar online only businesses. None actually, uh, AG one, sure. Like, but don't be the exception.

Don't you don't, you don't strive to become the exception, right? You don't scale businesses by being, we're going to be the exception. Like, that's just not how you do it. So, so that's what I would say. Like, like understanding sometimes your cap table, the way you've raised capital, isn't going to allow you to be a 50 million business because you have a 75 million valuation or 80 million valuation.

So removing that, which is a deep conversation and topic. If you're going to stay online, only understand there's a top that there's a, there's a ceiling to where you're going to grow your revenue and there's an efficiency that's going to start to decline when you get there. If you want to open yourself up to the other 80 percent of people who would prefer to shop in a store for most things.

Cool. Now you have to understand the differences in cost. And supply chain complexity and your finance function that are going to be required in order for you to get into retail, right? For every new customer you get. So you're going to use retailers, right? These, you can go direct, direct to Walmart. They cut a PO, they buy your stuff.

You send it to a distribution center at Walmart, pretty clean, but then you've also got distributors. Right? Some just work through distributors. So you got a UNFI, they're going to collect orders for multiple retailers, they're going to send them to their distribution centers, and then they're going to send it to the customer.

Now you have a relationship with the distributor. And you have a relationship, in our example, with Walmart Direct. Right? You may need to get a broker to get into some retailers, and the retailer that you got a relationship with through the broker only goes through a distributor. Right. And so I'm not going to get into like, try to confuse everyone, but the overall point is this, I would say internally to simplify all that down one, it can get complex and it can get expensive.

You're going to play slotting fees, just to pay to play, to get into some of these retailers. You're going to pay some of those distributors margin. You're going to pay some of those brokers margin. So you cannot probably. Go from having no retail exposure to every retailer. Let's just presume the buyer want from every retailer wants you in their store.

You're not gonna be able to do it probably because the cost is going to be up front and it's going to be hard. And then those retailers will pay you on terms on the back end. But even internally, if your supply chain team and your finance team are not familiar with the retail channel and all those different things that I just described, they need to get.

Trained up on that. And it's very different than how you're going to distribute into, um, e com, right? And your own 3PL. So, so there's a lot there, but I would say, A, if you're going to go online, only understand that you've got a ceiling. And if your cap table, Sets up such that that's okay for you and your margin profile sets up that like, Hey, a 50 million business for us kicks off 5 million at EBITDA and we can handle being a 50 million top line business because of our cap table and our goals and our desires.

That's awesome. That's okay. You don't have to be a hundred, 200 million business. If you want to get to a hundred or 200. You're probably going to need retail. And if you want retail, you're going to have to have a supply chain team, a finance team, and the cash in order to get into retail. 

[00:48:37] Jon Blair: Totally, man. Um, I I've, I've dealt with it before.

I had a, I had a stint before getting into DTC. I actually came from more of the wholesale, um, and manufacturing world. And like, everything is different. The cash conversion cycle is different. Cause you've got receivables. Um, you know, the, your financial model changes. Um, how you, how your operations team has to prepare shipments so that they actually get accepted and not rejected.

Um, there's just, it, it, it's a lot of complexity. I'm not saying don't do it. There's a place for it. And like Ryan said, make sure it ladders up to your overall strategy, right, and your overall goals. Um, so in, I'm going to help us land the plane here. Before we close out with a final personal question, which I always like to ask everyone, tell me a little bit about your consultancy.

What are you doing today, and how are you helping growing consumer brands? 

[00:49:35] Rya Rouse: Yeah, it's, you know, a lot of the stuff that we've talked about today, you know, my, it's funny, I've taken leadership roles on the marketing side of the house in, in a number of cases along the way, I've just never considered myself a marketer.

I've always, I got thrown into an operator role. And to your original point, when we first kicked off, I was forced to learn finance. I mean, I had a background in finance, but like business finance is different than finance, finance, finance, supply chain operations, marketing. And so I don't know, you know, like I, I happen to be very good at marketing.

I happen to have a business. And so I'm working with, you know, like I like to think of myself as like. What I would have loved to have had in when I was operating factor before I sort of know what I know now, which is someone that can speak intelligently on your leadership team across functions. I think the best people you add to your leadership team, everyone on your senior leadership team should have the ability to speak intelligently about every function of the business.

They're not an expert in it. They're not running the function, but if they can't weigh in and a at a minimum understand how their function. Is going to affect all the other functions, but more importantly, and more ideally be able to speak intelligently about those other functions where that leader has an issue and you can collaborate with them on a solution to it.

So that's how I think about it, right? You, you have a lot of complexity that the, the thing that I, my. Clients would probably say I do best is just find the simplicity, find the simple answer, try to reduce the complexity. What's the 80 20. I think it's incredibly hard to find the 80 20 of your own business because you can't read the label from inside the jar and you are totally squarely inside the jar at all times.

And so just an outside perspective from someone who's operated multiple businesses in this space, bootstrapped way. Had to look at profitability from day one and therefore have a lens that says, Hey, I can, you know, I can be helpful across a number of functions. Um, not just marketing because for marketing to work, you need all the other functions to work too.

[00:51:41] Jon Blair: I love that spot on their spot on. Um, Okay, so I always like to end with a personal question. You know that I'm a dad of three little kids. Um, in terms of being a dad, I think I did the math and I'm about four and a half years behind you in terms of the age of my youngest. And I've talked to you several times about like, just, I mean, I mean, I'm completely honest with everyone here.

Like, it's just all out insanity. It's the most amazing thing I've ever done. Raising a small family and scaling a business at the same time. But sometimes I question my own sanity. Like why am I doing these two things at the same time? They're both so exhausting. And so I'm asking for a friend here. How did you pull off raising a young family of three while being an entrepreneur?

[00:52:30] Rya Rouse: Yeah. That, you know, the, the really short answer, which is like not helpful is you just figure it 

[00:52:38] Jon Blair: out. 

[00:52:39] Rya Rouse: You know, it's, it's not unlike anything. I mean, think of all these challenges you take on within your life when, when you can look back and you say, we had no idea what we were doing, but we figured it out.

So there's an element and their strategy to this, right? Of understanding again, what's the 80 20 of like me being a father to me, I determined to ask that question and answer it right to me. I want to be present. I want to be available. I want to be around. Right. Yeah. Okay, cool. So, if, if My kids feel loved by me and I'm around and they see me every day not every day But most days I feel like I'm doing a good job there cool So then I don't have to get so stressed out about stressed out about all the other things as a husband If I'm of it once you have kids very different to be a husband without kids and it is with kids like Totally am I doing 50 percent of the work?

No, I think my wife does more than 50 percent of the work I think most wives do more than 50 percent of the work But, um, am I there when she needs me? Do, am I clear on what she's asking from me on any given week or day? Like, so just asking like, what do you need for me this week or this month or this day?

And if I'm there, most of the, if I can say yes, most of the time I feel like I'm winning, right. As well as spending alone time with her. And then same thing with the business. It's like at some point you 80 twenties overused, but it's overused for a reason. At some point you just have to understand what's important and the rest is just you worrying.

Right. About, about, you know, like, was I not there enough or was I will ask her, right? Like, was I not there for my kids? Ask them once they're old enough, you know, but I think it's just asking yourself and asking the people you care about what they need from you and asking yourself what you need and then trying to show up there as often as you can and let the rest just be what it is.

[00:54:30] Jon Blair: Dude, such sound advice, man. When you posted two days ago about your birthday, I actually read that whole post and it was like, I want to be Ryan Rouse when I'm 45. He's a few years ahead of me. Um, but man, I just, I really look up to your wisdom, man, on the business side. I'm, I truly, truly am someone who, um, holds you in high regard on the balance between, uh, you know, personal and business.

And so, I just, I can't thank you enough for coming on the podcast and sharing some of your wisdom. I might have to have you on again at some point because there's just so much that we didn't get into. Before we break here, um, where can the audience find more about you and your consultancy? 

[00:55:13] Rya Rouse: Yeah, LinkedIn and Twitter, easy enough.

You know, after, after we just spent so much time ragging on those platforms, I'm a believer that there's a lot of good on those platforms. So, so hit me up on one of those if you're interested. 

[00:55:26] Jon Blair: Definitely follow Ryan's content. Um, you know, I, I, um, shamelessly follow it all the time and I'm always like, man, where does he come up with all this wisdom?

Um, but thanks everyone for joining. Um, again, masterclass in so many important concepts, uh, today. So you might need to listen to this one twice. Um, and you know, if you're looking for help on the accounting and finance front, as you're scaling your e com brand, don't forget Free to Grow CFO. We're here to help you scale your brand alongside healthy profits, cashflow and confident decision making find us on a, you can find me on LinkedIn, Jon Blair, or our website, Free to Grow CFO. com until next time scale on.

Leveraging Data Privacy Laws to Increase Profitability: Ian Madigan with Dataships

Episode Summary

This episode of the Free to Grow CFO podcast features host Jon Blair engaging in an insightful conversation with Ian Madigan, Head of Partnerships at Dataships. The discussion highlights the crucial aspect of improving profitability for DTC brands by leveraging data privacy laws to optimize post-purchase email opt-in rates. Ian shares his journey from being a professional rugby player to joining Dataships and sheds light on how the company helps brands navigate the complexities of data privacy laws to increase their marketable audience through compliant email and SMS marketing practices. The conversation also delves into the importance of compliance and how Dataships helps brands navigate the complex landscape of data privacy, thus aiding in scaling with a profit-first mindset.

Meet Ian Madigan

Ian Madigan, Head of Partnerships at Dataships. Ian was previously a professional rugby player, playing 31 times for Ireland. He was an early investor in Dataships and moved into a full-time role in 2023. Having owned and run an eCommerce store, his passion now lies in ensuring that data privacy laws do not hold businesses back, the Dataships mantra of 'Growth Through Compliance' fits in well with his goals.

Episode Transcript

00:00 Introduction and Welcome

00:32 Understanding the Role of Dataships

01:49 The Importance of Maximizing Post-Purchase Email Opt-In Rates

02:15 Ian Madigan's Journey and Background

03:28 The Evolution and Impact of Data Privacy Laws

05:27 The Power of Leveraging Data Privacy Laws for Marketing

06:07 The Knowledge Gap in Brands and the Power of Data Privacy Laws

07:33 The Misconception about Data Collection on Shopify

08:37 The Impact of Data Privacy Laws on Marketing Consent Rate

09:07 The Role of DataShips in Maximizing Marketing Consent Rate

13:44 The Value of DataShips for Different Brands

32:09 The Double Impact of DataShips on Profitability

40:06 Final Thoughts

[00:00:00] Jon Blair: Hey, everyone. Welcome to the Free to Grow CFO podcast, where we talk all things, scaling a DTC brand with a profit first mindset. I'm your host, Jon Blair, founder of Free to Grow CFO for all of those, for all of those, for those of you that don't know Free to Grow as a boutique outsourced accounting and fractional CFO firm.

And what we do is we help scaling profit first DTC brands grow alongside healthy profit cashflow and confident decision making. Today on the show, I'm super excited to be chatting with Ian Madigan, head of partnerships at Dataships. Ian, welcome. 

[00:00:33] Ian Madigan: Jon, great to see you again. Uh, thanks a million for having me on.

Uh, delighted to be on the podcast. 

[00:00:39] Jon Blair: Absolutely. You know, today I'm really excited to talk about today's topic because when I met you in Ireland at that e comm event several weeks ago and learned about what you guys are doing over there at your company, Dataships. A light bulb went off that I think the problem you guys solve is something that a lot of DTC brands in, uh, the States are not zeroing in on.

And so it's, in my opinion, the reason why I wanted to have you come on the show was I think it's kind of a, it's a, it's a goldmine that some of these brands are sitting on. It's going to be more valuable to some brands than others, depending on the product that they sell. You know, uh, do they have subscriptions or not, but like.

Again, this was a problem that I was aware of, but didn't realize the opportunity. Um, for how, um, for how your product could actually, uh, increase profitability of a scaling brand. And so I'm super excited to chat today for everyone, um, in the audience to understand what the heck are we talking about today?

We're talking about increasing profitability by maximizing post purchase email opt in rates. And, um, I think you're going to find today's discussion super, super helpful and hopefully actionable. For you to actually implement some of the things that we talk about today into your DTC brands, marketing mix so that you can improve your profitability as you continue to scale.

So before we dive into the. Um, you know, opt in rate topic in a little more detail, Ian, I'd love for you to just share with the audience a little bit about your background and how you ended up at DataShips. 

[00:02:19] Ian Madigan: Yeah. So before I, uh, took my, took the role of, of head of partnerships in DataShips last May, um, I was previously a professional rugby player.

Uh, so I played for. The top teams in, in, in Europe, in, uh, in Ireland, in, in Ster and Ulster. And then I also played in the top league in, in France, uh, with a team called Bordeaux Bag and in England with, uh, Bristol Bears. So I'd, uh, played over 300, pre 300 professional games, 31 times for Ireland. Um. But during that time, Michael, who's the CEO of Dataships alongside our co CEO, Ryan, he approached me back in 2013 with an idea for fantasy rugby, similar to some of the fantasy products that there are in the States.

We tried to replicate that in Europe with rugby, with a more kind of detailed stats based game. And we had good success with it. We built the game out. Um, at its height, you know, with 200,000 people playing it in, in Europe, which, um, for less populous countries, uh, isn't bad going. Yeah. Um, and then we, we, we subsequently sold it, sold a game, and it was really then in, in, in 2017 and 2018, that we pivoted into the data privacy space.

So in Europe, um. The GDPR was, was coming in, um, and we looked at building a one stop shop solution for SMEs, um, to ensure that they were going to be fully compliant with the GDPR. So at the time it was all, you know, privacy policies, cookies, tools, the big change we thought would happen with the GDPR in Europe was around, um, data access requests.

So customers making a request for their data. The merchant having to send it out in machine readable format, um, and we, we built a solution for that, but as, as, as it transpired, not many customers actually make these data access requests. And that wasn't really the change that the GDPR had, um, what we found that the GDPR, what a change was how data is collected.

And that's where we pivoted, uh, two years ago into really more growth space. And, and as you touched on at the start of the podcast profitability, so, you know, our slogan is growth through compliance. So, um, you know, as we all know that the cost of acquisition is going up with the, with meta ads being more expensive, Google ads being more expensive.

Um, you know, cokie tracking being nothing as effective, especially in Europe, and we can see that coming into the, into the States and Canada now, too. So, what we want to ensure is that, um, our, our, our clients can, uh, email and SMS market to as many of their customers as possible, and that's what we call the marketing consent rate.

So, the marketing consent rate is the percentage of your customers or the people. Um, traveling through your website that you're able to email an SMS market to. Um, and in effect, what we're doing is we're presenting the most optimal data privacy laws, um, to the benefit of our clients to ensure as many of their customers are opting in for marketing.

[00:05:35] Jon Blair: Awesome. I love that. So there's a ton to dive in there. I think you gave a really solid overview of like. What the problem is out in the marketplace from a data compliance standpoint or data privacy standpoint and how that provides a roadblock potentially to maximizing, I'm going to say it in simple terms, effectively, how many people you can email, right?

Or send SMS, uh, marketing text messages to and. Yeah, before we can touch on pretty much every aspect of that overview that you just gave us, but I want to dive in first to chatting a little bit about what you have seen as you guys have been growing data ships, um, what you have seen as the, um, kind of biggest knowledge gap out there.

Within the brands that you guys talk to and to be more specific when, when, when I sat down with you and really understood, um, what data ships does a light bulb went out off. Like I said earlier that like, man, I don't think a lot of my clients are even thinking about what data privacy laws are doing. To actually, um, keep them from growing their email lists and SMS lists to as large as possible.

And so I think that a lot of brands are thinking, they're thinking about buying paid ads. They're thinking about just emailing their existing email list, but they're not sitting there thinking about how do we get more people to subscribe through something as seemingly simple as. You know, uh, leveraging the data privacy laws, but the issue is there's a lot to know there, right?

And it's different from country to country. And so when you talk to brands that could potentially use data shift, what do you see is the biggest gap in knowledge of, of what these brand founders and operators just don't understand about, about the data privacy laws? 

[00:07:26] Ian Madigan: Yeah, great question. And the biggest knowledge gap for me is the misconception, um, around data privacy and how data is collected on Shopify itself.

So everyone thinks that for, you know, a big platform like Shopify, that they'll present all the different options that data privacy laws around the world will allow. Um, and it was really only when we were asked, you know, probably for, I'd say the 50th, 50th or 60th. Uh, time by our, our current, uh, clients, you know, how can we gather more data on our customers compliantly that we dove deeper into the different platforms and Shopify specifically, and we wanted to see, you know, from our own knowledge of the data privacy laws.

Is Shopify presenting the most optimal options? And what we found is that Shopify gives you two options. You can either have a pre ticked box, which is, is fully compliant in, in, in the States and Canada, or you can have an unticked box, which is fully compliant in across Europe. Um, now the two differences with those two options is an unticked box where the customer would have to take the box to opt in for marketing converts at between 20 and 25 percent and that's compliant across the world.

Um, and then the pre ticked option, which is compliant in the States and Canada converts at between 40 and 50%. The odd time is high as a 60%, but you're still missing out on. On, you know, potentially another 40 percent in the States and Canada with a pre tick box. So, what we, what we do is we present the most optimal data privacy law.

Um, and where, where we see the knowledge gap is that in the States and Canada, for example, you can rely on implied consent, especially in Canada, where. And once the customer is purchasing a product, they're effectively opting in for email marketing in the States. The legal requirement is no consent required, which is effectively the same as Canada in the sense that once a customer purchases.

You're able to email market to them so we can get an uplift in the States and Canada from 650 or 60 percent all the way up to generally 98 99%. Um, and then in Europe, you know, you've got countries like, um, the United Kingdom, France. Ireland, Netherlands, um, where you can rely on soft opt in or legitimate interest, where the difference there would be, as opposed to a customer having to tick the box to opt in, they would have to tick the box to opt out.

Um, and that's where across our portfolio of, of, of, um, 450 clients, we, we increase the marketing consent rate. Up to 88% on average, but for our American and Canadian customers, it would be above 95%. 

[00:10:25] Jon Blair: Wow. So this is fascinating. So let, let's break this down a little bit, uh, a little bit here and kind of summarize it for our listeners.

So we're talking about an, uh, post-purchase, um, or, or as part of the, the, the checkout process. an unticked box, right? Um, uh, in terms of like opting in to email marketing, that's converting at 20 to 40%. You said? 

[00:10:51] Ian Madigan: Yeah. Yeah. And I don't take box in Europe. We'll convert a generally between 20 and 30%. 20 and 

[00:10:56] Jon Blair: 30%.

Okay. And then at pre ticked box, Did you say 40 to 60%? 

[00:11:02] Ian Madigan: Yeah. 

[00:11:02] Jon Blair: Yeah. 60 to 60%. Yeah, exactly. But then, but then, um, leveraging implied consent, which means in the U S and Canada, it is compliant that if the, uh, customer executed a purchase, they're implying their consent to opt into email marketing that's upwards of 90 percent conversion in terms of, of, is it, am I correct there?

[00:11:27] Ian Madigan: Exactly that. It'd be even upwards of, of 97, 98 percent where, where you wouldn't have that, that total 100%, 100 percent would be if an American or Canadian customer, which was purchasing from Europe, but it was being shipped to the States, it would default to the safest data privacy law. So that customer might be asked to opt in or double opt in if they happen to be in Germany at the time.

And, but it will be close to a hundred percent, exactly that. 

[00:11:52] Jon Blair: Okay. Okay. So we're talking Shopify only offers the unticked box or the pre ticked box. So let's say you go with your Shopify site, you know, to the, you know, maybe a little bit more, um, aggressive pre ticked, pre ticked box, right? Forty to sixty percent.

opt in rate versus 97, 98 with using data ships. We're basically talking close to double the opt in rate, right? Um, so if you think about, um, if you think about increasing the profitability of your marketing efforts, you know, like Ian mentioned earlier. In the post iOS 14 world and you know, seeing CPMs get more and more expensive on Facebook and you know, Google advertising costs are going up more and more brands that I'm working with as a fractional CFO, they're turning to their retention, right?

And they're saying like, look, we still need to use, we still need to use pay per click advertising or top of funnel. Advertising channels like Facebook to drive awareness and acquire new customers. But we're going to really make our profit or at least the bulk of our profit. We're going to make on repeat purchases and we're leveraging our email lists and our SMS, um, lists in order to do that.

So thinking within that kind of like view of the world that we live in, in, in trying to, to scale a profit first DTC brand, if you're converting on your Shopify site, Double or close to double. The number of people that are opting in post purchase to email marketing. That is, that can be for the right brand, that can be massive for driving your, um, driving your marketing efficiency and ultimately your contribution margin through the roof.

So walk me through a little bit of what are the types of brands or maybe the types of products or, um, I don't know if it's subscription versus non subscription, like what are some of the core key characteristics that you see? In a brand that really, really benefits financially from using a product like Dataships.

[00:14:01] Ian Madigan: Yeah, like, so for us, it is wide ranging, um, you know, the, the cosmetic space in particular would be one that would work well, you know, repeat purchase products, um, not necessarily high AOV, but we would have some, some clients that are high AOV. Um, and then, you know, a wide, wide range of products. But you know, across our, our portfolio we would see the most in, in supplements, cosmetics, footwear, um, clothing, um, pet supplements is a, is a really popular one.

And when you were talking about subscription there, where, where we would be popular would be in trying to, uh, in, in ensuring that for one off purchasers. That they can be marketed to, and then with the goal of turning them into subscribers, as opposed to, you know, maybe one in five or two and five of those one off purchasers, um, being marketable and maybe only 50 percent of them turning into subscribers, we'd be increasing that to four or five out of five and ensuring them that they're, they're moving on to subscription.

Um, but yeah, for, for really high average order value products, um. It's not as good a fit because generally that the repeat purchases aren't going to be there, um, or it could take, you know, maybe 3 to 6 months or 12 months for those repeat purchases to happen. Um, but, yeah, in those other sectors, it's, it's really powerful and, you know, ultimately, Jon, if you've 1000 customers coming through your checkout, and, you know, even with a pre tick box, if you can market to 500 of those.

And you're converting what we generally see with email marketing. It's kind of between 5 and 15 percent will be kind of the market average we'd see. But if you can, if you can maintain that 5 or 15 percent would increase the number of people you're marketing to, to close to a thousand. Then you're looking at a significant return.

[00:15:52] Jon Blair: Yeah. So I think there's a couple of interesting points that we can dive into on that. One is, and you know, we talked about this when, when I met you in person in Ireland, walk me through what you tend, what you were seeing with these brands. They, they get on, they start using data ships. Um, let's say they've doubled their email opt in rate, um, from 45 to 90%.

Right. They were using the pre tick box before. What do you guys tend to see in terms of two, two key components? Cause I'm sure every brand founder operator listening to this podcast is going to have these questions. Okay. Well, what, what is that, what are you seeing is happening to the conversion rate on email, right?

Cause the, the, a big risk is conversion rate dropping so much that it offsets the additional subscribers and two, what do you see in terms of unsubscribes over time, or is that 90 percent that's retained post purchase? Or opted in for post purchase, are they sticking? What are you guys seeing with the clients that you're serving?

[00:16:55] Ian Madigan: Yeah, I think, you know, brands are very wary of the unsubscribes. And I think when you, you know, you, you promote through a competition or a giveaway, you're going to get people who will sign up for the competition giveaway. But then once the competition passes and they don't win, they will then unsubscribe.

And they're not necessarily valuable, um, data to have. But what's different with, with our list is because they're actual paying customers, they've gone through the checkout, they're more vested in the brand itself. Um, that when they do get marketed to it generally sticks and they're happy to see marketing content to, uh, from the brand.

Obviously it's, it's over to the, the, the brand itself to ensure that, you know, they're segmenting while the timing of their offers is good. Um, if you're sending out, you know, poor quality emails. Not necessarily good offers are relevant to the person. You will still see a drop off, but what we see is the actual unsubscribed percentage will stay the same as it was pre data ships.

Um, but because you're having more of your customers actually subscribing to emails. The actual number will go up, but the percentage will stay the same. So if it's 5 percent of 500, you're looking at, you know, 25, um, unsubscribes 5 percent of a thousand, you're looking at 50 unsubscribes, but, um, yeah, we'd keep a very close eye on that.

Um, and ultimately what we've seen is that, that, um, customers are still happy to receive marketing information from, from the brands that they've actually purchased from. 

[00:18:29] Jon Blair: Yeah, that that's huge. And I, I think you, you're bringing up a couple, like just. Regardless of whether or not you're using a tool like data ships, there are just some core tenants of good email marketing, right?

That like you're going to want to adhere to, like you said, segmenting so that you have some sort of personalization in the email journey. Right? Um, which is hopefully driving relevant information going to each of each of your email segments, the right offers at the right time. If you're just, if you've got poor email, um, marketing strategy or, um, you know, tactics, that's going to drive unsubscribes, whether you use data ships or not.

Right? And so, um, I do really love how this is tied into. Post purchase because like you're talking about they've already voted with their dollars that customer right for a product From this brand and so this is not about some sort of a gimmicky way To drive email subscribes like you brought up the giveaway or you know something something of free value This is about deepening a relationship with a customer that has already transacted with the brand, right?

And so it's like, uh, it's in my opinion from an email marketing standpoint. It's like a high leverage moment, right? Or, or like you can either kind of lose that customer, um, in terms of like lose their attention, right? And the ability to talk directly to them post purchase. Or you can capture that customer by getting them to, to opt in.

You already have a relationship with them. And so you actually have something already preexisting to leverage. You're not trying to leverage something from zero to something. Right. And so, um, I love that. I want to talk a little bit more. About data ships itself, just so that, um, the, the audience can kind of wrap their mind around like, okay, I think we've been pretty clear about Shopify currently offers these, these two options for, um, you know, marketing opt in post purchase it's pre tick box on tick box, right?

One's got a 20 to 30 percent conversion rate, the other 40 to 60, um, data ships has proven to. You'd be able to increase it to, you know, 90, as high as 97, 98%, but like from a practical standpoint, what, how, how exactly does this look to the brand when they want to go get data ships turned on, how easy or how, how hard is it to do?

[00:21:02] Ian Madigan: Yeah, great question. So I think first off, what we've, what we've kind of explained is, is for brands that are only selling into one region where data ship still works, you know, particularly well, if you're. Selling solely into the UK or Ireland or, or, or America or Canada, but also for brands that are selling internationally.

So they could could be selling into multiple different regions and each of those regions can have different data privacy laws. So, for example, Germany is particularly strict. So. Because our, our, our widget is, is geo located from the IP address, uh, backed up by the shipping address and billing address. Um, and off the back of that, then we're then presenting the most optimal data privacy laws.

So for example, in Germany, it's really strict. You have to do use double opt in. So the customer, if they're purchasing from Berlin and Germany would have to tick the box to opt in, and then they would have to double opt in via the first email that they'd be sent. Uh, in Klaviyo, so we would have a separate list in Klaviyo for, for, for, um, for any German customers.

Um, they're purchasing from the UK or Ireland or France, then they're being presented with a box where they would have to tick the box to opt out. Um, if they're purchasing from Canada or, or the States, then they're being presented with the marketing preferences. And a link to the privacy policy, which is still really important for, for, for the, uh, data privacy regulations, but they will be going straight into a marketable list within within Klaviyo.

Um, so, yeah, the actual, uh, dev side of what we do, we're in the Shopify app store, the installation. Um, only takes three minutes. Um, it's as simple as giving some access in, in Klaviyo and copying some script into the, um, the checkout page on, on Shopify where we're obviously altering what we're doing around the, the subscribe box.

Um, and then for SMS, it's, it's slightly different because the laws vary from, from state to state. In, in the States itself. Um, so yeah, the implementation on the SMS is maybe about 10 or 15 minutes, but the, um, the initial implementation of email is, is only three minutes to get up and running. 

[00:23:14] Jon Blair: You know, what's interesting about this.

And I think we chatted about this a little bit when I was, um, Hanging out with you guys in Ireland. Um, you know, in, in one respect, what you guys are doing is not all that different, um, conceptually from the way that we view in the e commerce world, uh, these sit outsource sales tax, um, offerings. And here's why, because so like back in the day, in the heyday of, of like early days of e com, when I ran, um, accounting and finance departments.

You know, we have these sales tax liabilities all over the country and it's just this huge pain in the ass. So as you, as you scale, you get, you hit nexus and more and more states in the U S and you've got to go set up a corporate tax account and a sales tax account and, and you, and every, every government agency has a different website or some of them, you still have to mail in the application.

It's crazy. Right. And, and there's 52 states in the U S and so like. Part of you, you know, you're, you're pulling your hair out trying to manage this admin nightmare and this compliance nightmare and like, eventually you're like, man, is there some way to just like apply for all 52 states and just like get set up so that this can be done?

But then what's the problem? Once you get set up, you have to file the returns all the time, but then even worse, you have to keep up with all the different sales tax law changes in all of those 52 states, which is basically impossible to do if you're a, you know, small to mid size, scrappy, profit first, scaling DTC brand.

I look at data ships and like, yes, the tool that you guys have built from a software standpoint is Is slick in terms of how, like you can just get it set up in the Shopify app store super easily. Right. And it will automatically detect based on the IP address where the purchaser is located. And it will default to what you guys have deemed to be the, um, the email opt in rate that's compliant, but would most maximize, um, you know, consent.

But then here's the, the flip side of that coin. The laws are changing. Right. The law and as a brand, so like the point that I'm making is like, as a brand, you could go set this up on your store if you wanted to, to start in the US, but then are you going to have a team that's going to go keep up with how these laws and compliance requirements are changing?

Absolutely not. You're super crazy busy trying to scale a brand and then in comes data shifts. And we talked about this a little bit, um, you know, before the show, like you guys have this team who's keeping up to date on the data privacy laws and the different countries that you, that the tool works within.

Um, and that's where I liken it back to those sales tax agencies. We now, instead of managing sales tax ourselves, we're using XAMPP or numeral or Abilara, and you're just plugging into them usually oftentimes through some sort of a software plugin. Sometimes it is a Shopify app and they're handling all the sales tax backend for you, right?

Um, talk me through a little bit what you guys do at data ships. To unbeknownst to your clients, they don't have to deal with it. They don't just get this nifty little app that's maximizing opt ins, but you've got this team that's keeping up on the compliance requirements and if needed, tweaking your app to make sure that it, it stays compliant.

Walk me through what you guys are doing in the background there. Cause that's a huge, huge lift that you're taking off of these brands. 

[00:26:47] Ian Madigan: Yeah. So like, first off, like on that point, like my, my passion doesn't necessarily lie in data privacy, you know, but where my passion lies is very much in ensuring that it doesn't hold businesses back and that's where like our slogan of growth through compliance, ensuring that the, you know, if, if there's a more optimal data privacy law that can be relied on.

Let's make sure that, that, you know, e commerce merchants are, are, are using it because they've, they've, they've so many different things to, to, to worry about. We don't want compliance to be holding them back and we've had so many merchants over the years come to us and they're just so afraid of these data privacy laws that they'll default.

To the strictest, but they might only convert a 10 or 15 percent or even on the high side, you know, maybe 50%, but they're still leaving 40, 50 percent on the table. And, you know, in my view, that's unfair because the e commerce merchants are doing an incredible job and getting, you know, potential customers to their website.

Then their website themselves itself is doing a brilliant job in converting these potential customers into paying customers. We want to ensure that those paying customers that as many of those are being marketed to, because there's been so much money spent and driving them to your website in converting them on the website.

It's, it's only fair that you can market to as many of those as legally possible. Um, so yeah, from, from a compliance standpoint, we have our own in house compliance team and we've, we've built out a rules engine for, um, 88 countries. So we have, um, the rules built. If we have a client come on and we don't have the rules built for that country, we will ensure that, um, we'll be up to date on the, on the data privacy laws.

It usually takes about two weeks for a new country to be added. And then we're staying on top of all the new data privacy laws that are that are coming out. So, for example, in the States at the moment, from state to state, we're seeing different regulations around SMS. So we're ensuring that we're, we're staying on top of those, ensuring compliance, whether it's.

Texting at a certain time in the day may be allowed in one state, but could be prohibited in another. We didn't share that. That isn't happening. And then similar with with the data privacy laws within Europe and the states, we're seeing that changing, you know, month to month and we're ensuring that. That, um, that our solution is, is keeping our merchants, um, up to date and ensuring that, that they're being compliant.

[00:29:19] Jon Blair: Yeah. So, you know, what's interesting about that, the fact that you guys have a compliance team that's staying on top of changes, right. To, um, whether you're talking about state level changes in the U S or you're talking about, you know, national, um, changes in the U S or, or, or in other countries. When we tie this back to how a tool like Dataships can help optimize your profitability as you're scaling, there's the obvious subject that we've been talking about, which is, hey, you're doubling your marketing opt in rates post purchase.

You know, and you keep your conversion rates and unsubscribe rates about the same, but you've got double the subscribers. Obviously, that can, that can really make a dent in marketing efficiency and profitability for your brand. But, additionally, you don't have to pay the overhead of the internal compliance team that you would need to do this on your own, right?

Dataships has that handled, right? They've got the compliance experts internally, so you're improving your marketing efficiency through that. The, the, uh, marketing opt in rate. Maximization, but you're also just removing, you're outsourcing the compliance efforts. To a company who is an expert at it, right.

And like, that's one theme that I see super common, uh, that really elite scaling seven, eight, and even nine figure DTC brands do really, really well is they figure out what their brand and their team is really good at, what their core competency is. And they just stay laser focused on that. And what I tend to see is that the brands, you know, elite brands, core competencies, product development, right.

Um, marketing. Customer experience or customer service. Maybe they're very operationally excellent, but, but you don't find a DTC brand who's crushing it because their compliance. Experts, right? Whether you're talking about tax compliance or data privacy compliance or other compliance, that stuff's usually outsourced as it should be because they're absolutely super important things that you have to adhere to as you're scaling, but they are not the core things.

That really set your brand apart in the marketplace, right? Like market, marketing and product development and customer experience. And so the point that I'm making here is that when it comes to scaling a profit first D2C brand, knowing what overhead activities and costs you should outsource. To experts in the field.

In this case, we're talking about data privacy, which is super important for a DTC brand. Absolutely. Make sure that your brand is good at that if you want to optimize profitability over time. So it's kind of like a, I wasn't even really thinking about this as we're preparing for the show, but you guys kind of have a double whammy in terms of how you can improve profitability, marketing efficiency should go up.

But then at the same time, you're removing this overhead burden of, of staying compliant. And I think that that's, that's really, really cool. Um, so I want to actually, um, I want to actually, before, before we move on to a slightly different topic, is there anything that we haven't covered in terms of like GDPR compliance in the U.

S. that you just think might be a knowledge gap for the listeners of, of this podcast? Anything else that you just, you know, I think that a DTC brand founder operator in the U S should know that they probably don't know about data privacy laws in the U S. 

[00:32:53] Ian Madigan: Yeah, I think that the biggest one is that, you know, that a lot of the merchants in the States and Canada, they don't realize how preferential the laws are there.

If they're selling on a platform like Shopify, it doesn't allow them to utilize those different laws. Um, and that's where that's ultimately where, where we come in. Um, and yeah, one, one, one area that I didn't touch on is, is that the actual emails that we unlock, we, we actually track those emails and we see who, who has repurchased, um, and to the value of those repurchases.

So that's. That's a key way for us to ensure that we're showing the value of, of, of our, our application. Whereas if, if, if, if the, those emails weren't deemed valuable and weren't making the repurchases, then our, you know, our solution, you know, falls on its face. So, um, and, and, and tied in with that as well, Jon, is we ensure that we, we do, um, a, a two week free trial, um, to, to.

Show a dashboard within that dashboard, we'll be able to do a 12 month look back and show what our merch, what the merchants previous or pre data ships marketing consent rate was and then what we've grown it to in that 2 week period. And then we can also show the emails that we've unlocked and the value of those, um, repeat purchases and then depending on what, what sector they're in.

We can dive into them and show, and show, for example, if they're in cosmetics, we can show them cosmetic examples of the results that you can expect after a month, after three months, after six months. Um, so yeah, it's, it's, it's a kind of risk free way of, of, of trialing the app and ensuring that they see the value in it.

[00:34:35] Jon Blair: I love that the risk free trial is super important. And you showed me the dashboard when we sat down together in Ireland and, um, it's super helpful for understanding what the impact. Of turning the app on is and, um, that way, you know, when I think about, you know, some of the brands that we work with potentially considering using data ships, like, um, it's really easy for me to bring it up to them because it's not a huge lift first off to get it implemented and it's not a huge risk.

To test it out and, and get some analytics from, from your dashboard on, on really what is the app doing to improve the opt in rate and then ultimately the, the value of those additional opt ins, um, over time. So before we close up here. I like to end every episode getting a little bit personal with the guests that are on, on, and, and, you know, you mentioned earlier that you're a rugby player, which, um, I was actually on the plane coming home from Ireland and a guy sitting next to me on his way to Dallas, I'm in Austin, Texas, he had an Irish accent, and we were on the connecting flight from Dallas to Austin, and I said, Hey, man, are you, are you traveling to Austin from Ireland?

He goes, And he's like, I'm, I'm, I'm traveling to Austin for my first time for, uh, uh, uh, a show like with, uh, for work, uh, a trade show. It's like, that's funny. I'm coming back from Ireland, kind of from a trade show, my first time to Ireland. And so anyways, we started talking. And he was asking what some of the brands were, or some of the companies were that I met with.

And I was telling him, I said, Oh, and I met with this one guy. He was a rugby player, Ian Madigan. He's like, Oh, I know Ian Madigan. Um, and so anyway, so we actually talked about you on the flight home, but all that being said, you know, post, you know, your, your pro rugby career. Um, what does your personal life look like these days?

[00:36:31] Ian Madigan: Yeah, so I've, I've been finished really playing since, since May and, uh, full-time with, with data shift. So that, that, that certainly keeps me busy. And then I do, um, national television for the, the rugby when there's, um, either Irish matches on or the, the club games, um, which is the U or C or the, the European championship.

Um, and then I'm actually a promoter as well for, uh, American college football. So, oh, really? 

[00:36:59] Jon Blair: I love it. 

[00:37:00] Ian Madigan: Yeah. So I was over in, in, in Florida state, uh, back in October for, for, uh, again, there against the Gators and then I was back down in Dublin this weekend with the Georgia tech, uh, teams. So Georgia tech are hosting Florida state in Dublin in August.

And, uh, I'm happy. Promote that game to ensure that, um, I think there's 30, 000 Americans coming over and it's my job to ensure that there's plenty of Irish people there watching as well. Um, so yeah, there's, there's a good, good American connection there. Um, and yeah, then we've, uh, have two, two Labradors, Black Lab, Benji and, uh, Fox Red Labrador, Freddy.

So they're one and three and they keep me busy. So in my spare time, love going on hikes with them. Um, We've just bought a hay, so I can't afford to do anything else other than just walking up the mountain. 

[00:37:54] Jon Blair: I love it. I love it. That's cool. I didn't realize your connection to American football. I'm a huge, um, American football fan, college specifically, my huge USC Trojan fam, uh, family.

And so we're huge. I've been going to USC Trojan games my whole life. Um, what's something that you're, uh, reading or listening to that's really impacted you, um, recently? 

[00:38:18] Ian Madigan: Um, I, being honest with you, I don't, don't read a whole lot and I, I used to listen to more podcasts than, um, than I have done recently.

Part of it is just being busier and when I find now and I'm in the car, I like to just chill out and listen to some music. Um, but I got to see Bob Marley's movie there, um, last week, One Love. Um, you know, obviously it was very sad that he passed away at like 35, 36, I'm 34 now. And I think the movie itself just gave me a really good appreciation for life and, you know, how lucky I am to be fit and healthy and, you know, appreciate the smaller things in life.

And, uh, yeah, I've been listening to his album Exodus flat out since and certainly helped him chill me out and, and enjoy the moment more. 

[00:39:06] Jon Blair: I love that. I love that. Um, yeah, I mean, look at, at Free to Grow CFO, I say this a lot in our content, but you know, business is much bigger than, um, than just making money for our business, actually our, our purpose.

The reason we exist is to build a profitable business that cares for people. And the reason that's our purpose is because. To me, business, yeah, yeah. We need to be profitable. Profitable is in there in service of caring for people, making a difference, right? Like a business should make a difference in the world one way or another.

Um, and so that I, I love the. It all comes back to this heart that like, Hey, we've got one life to live. It's short and we're here to enjoy it and make an impact. And so I really, really love that. Um, so before we close here, where can people find some more info on you and data ships? 

[00:39:59] Ian Madigan: Uh, so I'm on, uh, Ian, IAN at Dataships, D A T A S H I P S dot IO, or our website, Dataships.

io will have, um, plenty of information from, you know, implementation, the app store itself, pricing, um, and, you know, more information really around what we do. Um, and yeah, if you want to, if you want to reach out and have a chat, I'd love to show you the product in more detail. And, um, if not, Jon, obviously has my, uh, my details too.

And it's been an absolute pleasure coming on, Jon. I've really enjoyed meeting you in person in, in Ireland and, um, big fan of what you're doing and Free to Grow. And you've already made some, some brilliant introductions, um, to me, which is much appreciated. 

[00:40:45] Jon Blair: Of course. No, it's, uh, It's an honor to have you on as well.

I mean, we're here talking because what you guys are doing is very interesting. And I think it's kind of a little known fact that really can move the needle for, for a brand that's trying to scale and, and also shepherd, shepherd their profitability. So I really appreciate you coming on. This is super helpful.

Chalk full of nuggets that, um, the brand founders we're talking to can use to improve their profitability. So, you know, for, um, all that being said, You know, that's the Free to Grow CFO podcast for today, where we talk about all things, scaling a DTC brand with a profit first mindset. And don't forget, you know, if you need help, uh, with scaling your brand while also maintaining healthy profitability, cashflow, and confident decision making.

Reach, reach out to me regarding Free to Grow CFO. We're a boutique accounting. Um, sorry. We're a boutique outsource accounting and fractional CFO firm. And we work specifically with scaling DTC brands day in and day out. It's all we do. That's all for today, everyone. Let me stop here.

Leading a DTC Brand to $50M in 3 Years: Dean Brennan from Heart & Soil

Episode Summary

In this episode of the Free to Grow CFO podcast, host Jon Blair chats with guest Dean Brennan, CEO of Heart Soil, about the challenges of scaling a direct-to-consumer (DTC) brand.

Touching on everything from leadership to strategic decision-making, Dean shares his insights on the unique challenges and opportunities faced when scaling a brand. He emphasizes the significance of being consistent and proactive and maintaining a strong alignment with the brand's purpose. He also highlights his leadership philosophy which includes principles like trust, relationships, humility, prioritization, and high-value activities. Dean's journey, from his entrepreneurial influences as a child to his rise as a CEO, provides valuable lessons for growing a successful DTC brand.

Meet Dean Brennan

Dean Brennan, CEO of Heart & Soil Supplements, leads a pioneering brand in nutrition and health, with a focus on premium organ supplements. Under his helm, Heart & Soil has served over 200k+ customers and scaled to 50M in revenue in just three years, a testament to his vision and steadfast dedication to servant leadership with purpose. This commitment drives the company's mission to provide unmatched nutrition and lead a movement toward profound health and vitality.

Episode Links

Books or courses mentioned in the episode:

Traction: Get a Grip on Your Business by Gino Wickman

The Culture Code by Daniel Coyle

Coach Wooden's Pyramid of Success by John Wooden and Jay Carty

Decision by Design - FS Course by Shane Parrish

Episode Transcript

[00:00:00] Jon Blair: Okay. Welcome to the Free to Grow CFO podcast, where we talk about all things growing and scaling a DTC brand with a profit first mindset, I'm your host, Jon Blair. And today I'm super excited to be chatting with one of our Free to Grow CFO clients. It's Dean Brennan, CEO of Heart & Soil. Dean, welcome. And thanks for coming on.

[00:00:19] Dean Brennan: Happy to be here, Jon. Thanks for having me. 

[00:00:22] Jon Blair: So, as you know, at Free to Grow CFO, we're fractional CFOs and accountants for growing profit first DTC brands. And given where we sit in the space, you know, we're uniquely positioned to spot common challenges and opportunities across dozens of brands that we work with.

And the challenge that I want to zero in today and for the next couple of weeks on, on the pod is. The common constraints to scaling. And here, here's why, because every DTC brand that we talk to, like, they all say that they want to scale, but it's what I've found. Is that only the elite brands have like a solid, well thought out scaling strategy.

And I think a lot of brands think that, hey, spend a bunch of money on advertising, that's how you scale. They don't think about the fact that there are specific constraints to scaling along the way, right? And, and your constraints that going from say zero to five million are not the same as going from five to ten, aren't the same as going 10 to 20, 20 to 50.

And beyond, and so what, what I want to talk about is I'm a big fan. I'm a big reader. I'm a fan of several different books related to scaling one traction about EOS and the other one scaling up by Vern Harnish. And, and Vern lays it out really nicely in scaling up in terms of the constraints to scaling.

And he puts them in this order saying that you have to tackle these constraints in this order. Cause if you don't tackle them. In priority order, the ones that come afterwards just don't matter. And, and the constraints in order of priority are marketing because marketing is the engine that drives the plane.

And if, if you don't have solid marketing, you're not going to scale, but once marketing is working, you better have solid leadership because your organization is going to be growing and you need to, you need to build a machine that's led well to keep up with the marketing. And then third is cash and profitability.

And so you have a huge passion for sharing your leadership journey. I love following your content on LinkedIn. And so I thought who better to talk to about the leadership side of scaling constraint than, than you. So to get things kicked off so that the audience knows a little bit about you and, and why, in my opinion, you're, you're an authority.

On this subject. Tell me just a bit about your personal journey and how you ended up as the CEO at Heart and Soil. 

[00:02:43] Dean Brennan: Yeah. Happy to what's funny about the leadership constraint is I kind of realized throughout my journey that that's what was holding me back. And we can get into that more, but you know, I had a pretty normal childhood, grew up in Michigan, small town, lived outside of the city, which was kind of nice.

There were a number of, I think, formative Experiences and people in my life that helped me get to where I'm at today when I look back at it, and I didn't know it at the time, but had a really amazing grandfather for one who was very close with, you know, for example, playing sports growing up. I'd look into the stands every single game from being a child all the way through high school.

He was always there. And, and that when I look back at it now, is kind of centered in my why and, and why I do what I do at heart and Soil because I want, I want people to have healthy and happy grandparents. You know, you, you want people in your life to, to be that way because it, it only, it only helps.

One interesting thing I, I think growing up there is my father at a young age faced a pretty tough decision when I, when I was young. Mm-Hmm. . He was laid off from his job and he had another job offer in pocket that, you know, it was a better, a better offer than where he had, he had previously worked and like his dad did.

And like his brothers did, he decided, you know, I'm going to start my own business. So, you know, most of my childhood into. My teen years were kind of working alongside my my dad, you know, not every day, but he started out of our garage He had a trade. He was an appliance technician and he literally started from nothing from scratch and When I look back at that now, I'm like, okay I think I formed some kind of self identity around this because you know my dad was one of the heroes of my life and You know, I saw, I saw how he navigated the business.

I saw how he treated people. I went on service calls with him and I would learn the technical aspects of like how to fix things and, how to mark up products, essentially parts. I would look up parts, answer the phone call, phone calls from customers. So I was doing like sales, administrative work, all kinds of stuff growing up, even mowing the grass.

So, so I think that that, you know, it was really cool. opportunity growing up, like being surrounded by that. And it kind of instilled in me this desire to want to understand business and to want to do it and be like my dad. The other thing that I'll mention is that I was always an athlete and there's a lot I learned through through sports.

You kind of learn to be a teammate. You learn the importance of being a teammate. And, you know, not selfishly trying to get all the accolades yourself. There's one moment when I was young, I didn't understand why we kept having to do these drills. I was a running back and, and they're like, you know, here's a ball, run through this thing with all these little paddles that are gonna like try to knock the ball out of your hand.

And then we're gonna come over here and the coach is gonna try to punch it out of your hand. And I never understood. I always just wanted to play, like, just let me play. And sure enough. He was like, I don't know, our third or fourth game in the season. We're on the end zone or close to the end zone. Time's running out and I get, I get the call and I made it to the end zone.

However, I fumbled the ball before and I lost a game for the team. And that, that feeling of. Knowing that it was on you and that you let everybody down, that's kind of when it sunk in for me that, and this is at a pretty young age too, but I kind of realized, okay, I gotta, I have to practice these fundamentals and, and try to get better and better.

So one, so that doesn't happen again. That's not a good feeling when, when you let everyone down. But the other side of that is. There's always the next game. And so you, you can't let that get in your head for too long and you have to move on and you have to learn from it. So anyways, long story short, you know, those were some good moments in my life.

And then I think those kind of helped me out in my college career, my first job, which was up in Michigan. And I reached a point of being comfortable. And I kind of knew, you know, when I get comfortable, I don't like it. I'm like, that's usually when growth stalls and when it stops. So I moved across the country down to Austin, Texas for a job, didn't know anybody and just thought, Hey, I need this kind of pressure to help me grow and take it to the next step so we can get into my career now, but that's, that's kind of where I'm from and where some of my mindset was formed, I think from, from an early age.

[00:07:41] Jon Blair: Man, I love that. There's. So much that we could dive into there, but don't have all the time in the world to do so, but a couple of things that I hear just going on my own personal leadership journey for the last 15 years and kind of pulling out some things that are noticeable about your upbringing, like one, the focus on important people.

Right in your life and like the focus on people first from my perspective Is just it's it's non negotiable in being a leader like there's no such thing there is no such thing as being a selfish leader and there's no such thing as leading purely for your own benefit, it, it, that just doesn't exist that, that can, that can produce results for a certain season and a certain period of time.

But eventually all the, you know, no one's really going to be following you right at the end of the day. And and then the other thing is the entrepreneurial spirit in your family. And like, you know, funny enough, my, my dad is, he's a dentist, but owned his own business my whole life. Right. And, and my mom was the hygienist in the, And so like a small business is what is what our family lived off of my whole life.

And like, it's very formative watching your parents deal with the ups and the downs of running a small business and even more so a service business, right. Where like at the end of the day, you're not selling a widget. Or some product that some manufacturer makes for you and, and you're, you're just really good at the marketing and delivering it like your business is your service, right?

And so it's like very personal in terms of like taking care of your clients and then scaling a service business. I talk about leadership, leadership challenge. Like you have to scale on the back of people, right? And so you have to have people who are really willing to follow you and put their heart. And so into delivering the service as well as you, the founder have.

So like, I love all of that. What I want to talk about next, take this last question to kind of the, the, the next stage of your life, which is you have scaled or been a part of leading scaling heart and soil from zero to 50 million in three years. Walk me through that journey, some of the highlights and maybe even some of the low points in the learnings.

[00:10:06] Dean Brennan: Absolutely. Trying to figure out where to start on this one because a lot of like when the company started, I was kind of in a unique position to add some value in certain places. And that was from a couple stops before where, you know, I started my career in higher education and. I had a really great time, but it was also a very tough time in my career journey.

I heard I learned a lot of lessons the hard way and just the system of government. And bureaucracy, I was paying attention and I learned a lot of like what not to do. And my next stop after that was in a mission oriented FinTech company where it was like just complete opposite of the bureaucratic system.

So I got a pretty good education there. So what originally brought me to heart and soil, the other aspect here, that's very important when it comes down to. Our ethos as a company and our brand is that I in my twenties had ulcerative colitis, and I was able to essentially get off the medications that doctors told me I was going to be on for the rest of my life.

And I did that through eating essentially real food and cutting back almost completely on, on processed food. And when I went through that experience, I started thinking like, why, you know, why didn't my doctor ask me about my diet? Why, you know, we put so much into our bodies every single day, three times a day for a lot of people, six times a day.

Why wouldn't we consider that as maybe a first place to look when we're dealing with, with issues. So, you know, I wanted to scream this from the rooftops and. So I started a health coaching practice and started doing that. And then I eventually met Paul Saladino, our founder in Asana with two other guys, Dylan and Doug, our chief operating officer and Dylan, our chief research officer, and I could tell just pretty much from the first meeting that, they wanted to start a business, but it wasn't just the precipice for like why they wanted to start the business wasn't just to create a business. It was because they saw a problem in the world that they wanted to contribute to that they wanted to fix. And in my opinion, that's where some of the best.

Businesses come from. They come from solving an actual problem and not necessarily just wanting to make a business very important there. So when we started, you know, the passion was was high and that that's only going to get you so far, right? We had the opposite issue that some businesses have in that.

Well, I'm not even going to call it an issue. It was a challenge and I'm very fortunate for it. But our founder had. You know, very large audience with high trust before the business started. So, you know, when you open the doors, we've got, you know, hundreds, if not thousands of people emailing us about the product and.

There's three of us, well, there's more than three, but three of us kind of like working on, on the business with zero e commerce experience. So if you can imagine, not knowing what you're doing at all, thousands of messages coming in, supply chain issues. I mean, you name it issues with the platform, with the website, everything.

So we had to, we had to very quickly learn how to navigate that. And so we started. With a lot of those issues, a lot of process issues. So we started with customer experience, which is a little bit different, too, I think, than some businesses we because we had so many people emailing us. We're like, let's make sure we take care of these people that we answer their questions that we guide them in the right way.

So we came up with a framework for that and use some of our technology to to help us Recall information quickly, those types of things, SOPs, you name it. And we had a lot of issues on the supply chain to iron out. And that's where Doug comes into play. And Doug is a godsend. He was able to really take the chaos of chaos of our supply system.

And, You know, and again, it starts with people, you know, he spent a lot of time calling, talking with building relationships with folks, and kind of leading them towards a solution, you know, we sometimes I talked to people and they're having issues with vendors and they're like, Oh, you know, the first thing they say is like, I'm going to switch vendors.

And it's like, well, what are you doing? proactively to try to work on that relationship to try to proactively raise the issues and work together on a solution. I think some businesses move too quick to move on and the opportunity cost there is pretty great. So we had those issues at first, ironed them out for sure.

It doesn't help podcast, which also It was bad timing because we were out of stock of almost everything.

I mean, pretty much, I think the story of story for us in the beginning was we did, we tried to do everything and that, you know, isn't a good move. So you want to really scale back and figure out like, what is it first and foremost that we can do that's going to add the most value. And then let's build a great foundation of system process.

Marketing, understand your brand story, everything else. And then as time goes, you can build onto that. So we tried, we tried everything at first. I mean, we were shipping to every country. We were on Amazon. We were on Shopify. We were in a little bit over our heads. We had to tame all that chaos. 

[00:16:04] Jon Blair: So there's a, there's a few interesting notes that I took here that I think are, are interesting things to, to dive into a little bit further, at least call out one is going back to kind of my intro talking about how, you know, Vern Harnish scaling up.

He says, marketing is the first constraint then leadership, right? Marketing was working. Cause you're. you know, your founder, who's getting all of this huge exposure for the business that's driving demand that's working, but then there's things internally that are, you know, breaking or not, you know, fully polished.

But then you mentioned something, Doug, your COO, a godsend, right? So again, going back to this framework of scaling constraints. First, marketing as a constraint needs to be removed when that's opened up, then you need really solid leadership in the business, right? And you mentioned, not just you, but other functional leaders, and specifically you called out Doug, your COO, right?

That are able to really proactively get their mind wrapped around Challenges in the business and then themselves go execute or put together the plan to remove those constraints. So talk to me a little bit about like, when you, when we're talking about leadership as a constraint, as you guys were dealing with all this demand, what were some of the other key leaders?

that you had to get put in place other than just Doug, the COO? 

[00:17:33] Dean Brennan: Yeah, it's a good question. So it was really the three, it was myself Doug and, and Dylan who does all of our product development, he's our chief research officer. And our founder, Paul was in the same room with us at that time as well. I think what it really boils down to in those early days is.

And even important later as you get more, more, more people is that you have to, you have to show up and lead by example. So. We were proactively trying to support each other and the problems that each of us was trying to deal with. We also had to be very clear about whose responsibility was what, because, you know, you only have so many people and you have probably each person like 80 to 100 hours of work to do per week with, with more.

So prioritization is also key. So I think that was the biggest thing for us is that we all knew that each other. We're there to support each other and to make the business successful. And we were willing to do just about anything to make that happen. So at the end of the day, that's like the number one key there in the beginning when there's only a few of you is like, you can't be in a position where you're starting a business.

And, and you're just going to bark orders at people. So like you have to actively be involved, you have to be willing to admit when you don't know anything. And you have to be proactive and you have to move quickly. And sometimes you have to be okay with making the wrong decision, but being able to pivot from that fast.

So I'd say that there was a level of trust through. Going up for each other. And that really helped us in those very tiring and trying moments because they were, I mean, I think we worked like a year and a half, maybe two years without like a day off working weekends, working nights, working mornings, and, it was a grind.

It's a grind to start a business. And it's another reason why I think. For me anyway, my passion in health and wanting to spread this message. If it wasn't for that, I don't know if I could have put in those hours. I don't know if I could have done that work. And I know the same is true also for Dylan and Doug and the rest of the team that was there in the beginning.

[00:19:56] Jon Blair: I love that. So there's a couple other notes I took. Here you, you keep coming back to these, I, I would say very critical tenets of leadership, which like one purpose, purpose is fueling everything. Right. You, you, you mentioned this in a couple of different words, like one, why, what's your, why, right?

The other one, you know, when you and and Doug and Dylan were kind of like, talking about starting this business, that the passion that was behind it. So there's kind of passion and purpose. Then there's prioritization, another P word, right? Where first you guys are trying to do everything, but then you had to say.

It took the leaders to step in and say, what's the focus, right. Because, it, it, that has to start at the top, the focus and the prioritization of, of the, of the organization always has to start at the top and like the number of times that I've heard about a scaling business, whether it's a DTC brand or not, basically, you know, buckle under its own weight because they're trying to do everything right.

I mean, it's just, it's just so. Common. And so really quick on the purpose front, it's funny that you mentioned this. Cause like when we, when I started Free to Grow CFO, I, before I ever even, I didn't even know that this was going to be a fractional CFO business. I sat down, I'm an, I was an EOS coach. And so I'm, I'm a big fan of the EOS VTO, Vision Traction Organizer.

I printed one out and I sat down and I was like, what do I really care about solving? Right. And I wrote down DTC brand founders are so stressed out. It's overwhelming. They're overworked. Right. And, and everyone's always asking for a handout. No one's ever asking to help, right. Maybe being a little bit overly generalized, but that was my experience being on the brand side at guardian bikes.

So it was like, I want to help bring some more confidence and reduce some of the stress of being a brand founder. Cause I've been in their shoes and it, it's just this overwhelming feeling. And then what's our purpose. We're going to be a business that's profitable, but that exists to care for people.

Right. And the reason why I'm saying that is because. Growing Free to Grow CFO is like really hard. At times we're, we're still only two years into this. So we're still at that, like, we're, we're starting to, we're starting to scale beyond the founders, me and Jeff. Right. And those are like the hardest years in my opinion, because it's like, you used to do everything.

You can't keep doing everything at scale, but that, like the growing pain of like building a team and delegating and building the systems is really, really hard. And it's, it's almost like you have to have two jobs for a period of time, right? Before you can go to having the one job, which is the elevated executive of your company.

And, and what gets me through that every Monday, I read our businesses, VTO. It's where I read our core values, our reason for existing. And our mission and I'm like, okay, everything's going to be okay now because this is why I'm doing this. It's not because of all the emails that are in my inbox or all the slack messages I haven't gotten back to or all the things I need to get back to clients about.

It's about that we are here to fight back against the stress and overwhelm. Of scaling an econ brand and we exist to care for people. And so, how do you as the CEO of heart and soil champion to yourself and across the business, the purpose and the mission that you guys are on to keep everybody going through the hard times.

[00:23:35] Dean Brennan: Good question. And one working with you guys, I would, I wouldn't know that you're overwhelmed to have a lot of work as you guys show up all the time for us and shout out to Jeff because he's amazing. Amazing. So appreciate it guys. Yeah, you know, I started feeling that probably, you know, we've scaled to 50 million and it was probably around the 10.

10 to 25 million mark where so in the beginning, I was very in the weeds in on the marketing realm because my background is in storytelling and creative. So I naturally, you know, kind of fit in that realm. Anyways, when I started pulling out, you're right. I was doing like two, two jobs trying to facilitate that transition.

And working very closely with the folks on the team who are kind of taking over those responsibilities in certain areas of, of marketing. But to answer your question about keeping like the purpose front and center is. I think structurally in your business, you can, you can put some certain things in place and design it around it.

For example, the hiring process, the way we do it at heart and soil is that, I just, I will not hire someone. In a full time capacity that's coming into our HQ every single day, who is not intrinsically motivated to want to pour into this mission. And so what that means is I recruit from our community, I recruit from friends of friends of people that work here that live an animal based lifestyle that already take our products and, you know, there's challenges to that, on one side.

But. At the end of the day, what we're doing is like extremely important and I don't want to deal with the mess that will be if you bring in somebody who doesn't really fully, you know, believe in this and want to contribute to it. So we have a number of things that we do there on the hiring side from like the conversations that we have with candidates.

We have them out to HQ or we have even deeper conversations and experiences with them. And so. I really want to know that the people that we're hiring are very much into this and, and that there's no question there. So that, that is a, that's a non negotiable in our hiring process. And that is, you know, essentially lined up and guided towards our purpose and our mission.

So we did the traction thing too. And our purpose is to live the animal based lifestyle and spread it to others. So it's another important point in leadership when you, when you do have values. When you do have passions, if you say you are one thing, you better not do the other thing. You better do the thing that you're saying.

And this goes down to brand and storytelling, right? If you tell your customers, Hey, we're this, and then you're not that in their experience, whether it's through their email conversation with a support rep or whether it's through the product, then you have what's called a brand gap. And in a brand gap is where you diminish trust.

And the same thing goes for if you're a leader at a company, or if you're an employee at a company, right? If you say one thing and do the other, you're going to have problems. So, the key there, if you are a leader, is audit what you're saying, figure out what you want, figure out who you want to be, write it down, think on it, and do that.

And. And it sounds easy. It sounds easy, but it's, it's, it's very difficult to do, especially if you're, if you're in this environment, let's say you're working somewhere, you're leading a team and it feels kind of chaotic and you're not quite moving and flow. You'd be good not to point your finger at other people and to ask yourself, what can I do about that?

How did I contribute and figure out who you are, who you want to be, and then be non relenting in your decision making towards that. And don't feel bad for it. Don't right. Have a little courage, make the hard decisions and move towards that. Cause at the end of the day, if all that's in alignment and your team's working in flow, your bottom line is going to be affected in a very positive way.

[00:27:52] Jon Blair: I love all of that. I love all that. There's, there's so much there. I I'm, you know, it's funny. One of the questions that we talked about discussing, I'm not even going to ask, cause we've just. We've just kind of, we've, we've hit it multiple times, but you know, the core tenets of your philosophy on leadership, I'm pulling out trust and relationships, purpose fueled, being humble and consistent, being, you know, driving prioritization and, and high value activities within the business.

One thing that you mentioned. That really hits home with me on the consistency front. One of the reasons that I decided to start Free to Grow CFO besides like the purpose in the marketplace or like the problem we're trying to solve in the marketplace and the passion behind that is because I've worked at other places where leadership was inconsistent.

Say one thing, do another. And when you're an employee or even for me, even harder, like I was on a, on a founding, on the founding teams or on the executive team, right? And when you have the organization saying one thing and you're trying to adhere to that, but other people on the executive team are not.

It's really frustrating because you have your group of people who are loyal to you and you're trying to do right by the company's purpose, but then the rest of the org or maybe other functions are going in a different direction. And so one thing that I set out, I, I mapped out all of our guiding principles before the business started and wrote them down and read them once a week, sometimes more than once a week.

Because I don't want to be a hypocrite. Now, I, I've, I've, we screw up and when we, when I screw up, I know the best thing to do is just say, guys, I messed this up. I own this, you know, I'm one of the top leaders in the business. We made the wrong choice. I led us down the wrong path. We shouldn't have acted in this way.

Right. And so I, I always tell my team, like we're humans. And I always tell our, I always tell my clients too, like, Hey, we know what we're doing, we know what we're doing, but we're humans. And, and, and one other thing too, that I want to point out, and I think this is really awesome that you're doing this.

I first started posting on LinkedIn to just be helpful, right? My, my goal was to just be helpful, put out helpful tips cause I'm a huge content consumer and it's helped my leadership and my ability to scale a business. And I always want to try to give back what I've learned right in, in my content, but I've noticed a new thing that comes back to a very powerful.

Force of sharing your ideologies in social media and it's accountability to myself that I'm sharing with everyone on LinkedIn that this is what Free to Grow stands for. This is what Jon Blair stands for. And I actually will go post things sometimes. This might sound crazy. But I've been in this season recently like leaving and it's something that I want this company to adhere to but it's scary to say it and I'm gonna force myself to say it on LinkedIn because It's out in the open and, and, and if I don't adhere to it, everyone's going to call me out.

And so that might sound a little extreme, but that's something I've been doing recently because I feel like it's so necessary. And I, I think I even see, whether that's your heart behind it or not, I definitely see you out there sharing your philosophy. And I'm sure people on your team see some of your content.

And so it doesn't get more vulnerable than that. You know, 

[00:31:18] Dean Brennan: yeah, no, it's a really good accountability tool. I think the other thing that I think is really useful for is, you know, we just talked a little bit ago about why it's important to know who you are and what you stand for as a business. And as a leader, I realized at some point where, you know, we kind of have this, like this information problem.

You can read a million leadership books. They're all slightly the same. They all have like. Some different twists to them and everything. Well, in this journey of scale, I realized that I couldn't fully articulate my leadership philosophy and what I wanted for the company and figured that that was probably, it's a bit of a knowledge gap, right?

Cause there's like. When you are a master of your domain, you can easily articulate something. And so the LinkedIn content and the Twitter for me, partly, I hope it's useful for people, but it was me sitting down every morning for 30, 40 minutes and challenging my thoughts. And writing about it, putting it to paper, because when you write something, it, it makes different connections other than thinking about it.

And you see things that you don't see when you're talking about it. So, I'm still going through that exercise, still trying to figure all of that out. But I'd encourage anyone who's In a leadership position to do that, to sit down and write out what is your philosophy on leadership? Why do you think that?

Why could that be wrong? And and kind of go through those segments of thinking. And trust me, when you're when you're done with it, you're gonna have a much tighter grasp on what that actually means and how to apply it at your workplace. 

[00:33:04] Jon Blair: I love that. I love that. So what? You know, we've got we've got a few minutes left here, and I want to give you an opportunity.

Was there anything else That you want to make sure the audience hears in terms of like, we've talked about a lot of different core tenants of, of leadership. We've talked about how some of the ways that that helped you guys scale heart and soil, but is there anything that we haven't touched on that you're just like, this is a key part of my leadership philosophy and I want other DTC brand founders to hear this.

[00:33:33] Dean Brennan: That's a good question. I did think of one thing. Another application to keep the purpose and the why top of mind. Our company takes an hour out every single week on Wednesday and we have what's called a win meeting. And it's a very informal meeting where we all get together as a whole team. And there's like 30 of us now.

And. We share, we share our wins and every so often we'll, we'll talk about our whys and we like, that's an ongoing conversation. So it's not like you come on one day and you have your onboarding and you know, you talk about your why, well, it's revisited often and then we read customer stories and we share them and we, and we talk about them as a group.

So we keep. That connection to who we're serving and why we're doing it. It's been a really great thing because you'll hear conversations going on, like outside of that meeting about these things. And I just love seeing it. Have you ever come across a good definition of, of culture? I'm curious. 

[00:34:40] Jon Blair: So have you ever read the book culture code?

I believe his name is Daniel Coyle. 

[00:34:47] Dean Brennan: I've, I've heard of it, but no, I haven't read it. 

[00:34:49] Jon Blair: I can't remember the definition of, of culture that he used, but it's a, reading that book is very formative for me and for him. Culture was more about safety than anything else, meaning that like you as the leader build an environment of safety where no one feels like they have to hold anything back, right?

They can be their true self and that when you have this culture that feels safe, right? And then you layer on top of it, like whatever your mission and purposes, it's this incredibly powerful thing. 

[00:35:26] Dean Brennan: I like that. Yeah, I think that's important to like, allowing people to make mistakes and you know, you have to be very intentional to your reaction to just about anything.

If you're in a authority figure, you know, at a company like for us, I admittedly open my mistakes, you know, to the whole team often because I screw up. All the time. Sometimes it's a lack of preparation, which can cause so many issues down the road. So I always try to be prepared, but there's times in the phase of scale where sometimes things get really overwhelming and you're looking intended for different directions.

You need to take a step back and really, try to figure out what is it that you need to be prepared for. And sometimes you don't get it right. Yeah. So preparations. I think key, but admitting mistakes in front of your team and then not, you know, a lot of people I've been in environments where people get berated, you know, for a mistake and then nobody wants to.

Actually speak up when there's an actual issue and that's a problem because you miss things you miss opportunity That's never a good thing. 

[00:36:34] Jon Blair: So with our last little bit of time here I want to switch to just talking about your personal life because As you mentioned before and as I've seen in your content, it's incredibly Important to your overall holistic health and being just what is Dean Brennan's personal life look like these days?

[00:36:54] Dean Brennan: Yeah, good question. It's, it's changed a lot over the last couple of years. I just had my first child in April. So I'm still kind of getting used to that transition of, of being a father. It's the greatest, I think, life gift that I've ever been given. But from a scheduling standpoint, it's been tough to kind of figure out how to prioritize everything, you know, you go from, you know, we're like getting work done on the weekends to not doing that anymore to working into the evening to not doing that anymore.

And I don't want to sound like a workaholic. It's just like, I love, I love my job. And I think that's important is finding like a work life. Integration rather than balance. So finding something that you are so motivated about intrinsically that it doesn't feel like work to you. And that's how, that's how hard soil feels to me.

So I get excited. You know, in the morning when I get to go to work and solve problems and, be with my team and yeah, with the child, it's like, okay, the clock stops at five now. Cause I, you know, I try to schedule my family priorities first on my calendar and then. My, my work obligations. And then if I have any time after that, it's like, okay, I might play basketball.

I might play guitar. You know, I try to find little spots, you know, for hobbies, but yeah, adjusting, adjusting to the, to the schedule. That's been, that's been a big, big, tough one for me. 

[00:38:28] Jon Blair: Good for you for prioritizing your family, man. As you know, I have three little kids we were talking about before we hit record hardest thing I've ever done in my life is.

Be a CEO of a family and the CEO leader and founder of a business at the same time. And it's a, whew, it's, it's a great joy, but it is, it is hard. Last thing before we, before we run here, what's something you're reading or listening to that you recommend to the audience? 

[00:38:53] Dean Brennan: I love this question. You'll always find me reading or listening to something.

But I do have a New Year's resolution to create more than I consume because again, it's that problem of information. If you're not creating, then you get too distracted with everything that you're learning. But I'm taking a decision course right now by Shane Paris. Parish. It's the Fs blog. I don't know if you've heard of it.

He does an excellent job. He talks about thinking and mental models, and he has a really great course on decision making. So I'm going through that right now with our COO. One key takeaway there, I think for the audiences. Separate your problems from your solutions and define your problem first. So don't have a meeting where you're doing both have a meeting and get on the same page with your team about what the root problem is and then work on the solutions.

That that's one good takeaway from the first couple chapters of that. And then a book wise, I'm revisiting John Wooden's pyramid of success. I don't know if you've read it. But, yeah, all time. Great leader. What I, what I like about his philosophy is that he wouldn't even call himself a basketball coach.

You know, he was a teacher. And I think that is a lot of what leadership is. It's, it's guiding and teaching. And he focused on the, on, on the fundamentals, similar to my football story about, learning how to hang onto the ball and doing that over and over again. I think greatness comes through sometimes boring repetition.

So yeah, I'm revisiting John Wooden's pyramid of success and loving every bit of it. 

[00:40:33] Jon Blair: Awesome. Awesome. Well, thanks for sharing that with us, Dean. Thanks for chatting. You know, DTC brand founders out there. Dean just gave us a laundry list of really solid leadership philosophies to consider as you're scaling your brand.

Don't forget once you get marketing figured out, leadership will become a constraint. So you need to be proactive on thinking through what leadership your brand needs as you start to scale. And you know, until next time thank you all for joining. Again, Free to Grow CFO podcast, talking all things growing and scaling a DTC brand.

We'll see you next week. Thanks,Jon