Networking Your Way to eComm Success

Episode Summary

In this episode of the Free to Grow CFO Podcast, Jon Blair sits down with Tim Clark, founder of The Retail RX, to chat about scaling D2C brands with a profit-focused mindset, particularly in the realm of Amazon growth strategy. Tim shares his entrepreneurial journey, insights on transitioning from Vendor Central to Seller Central, and the importance of leveraging tech tools and networking to drive growth. The conversation emphasizes the need for brands to adapt to the evolving e-commerce landscape and highlights the role of RetailRx in helping brands optimize their operations and profitability.

Episode Links

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

Tim Clark - https://www.linkedin.com/in/theretailrx/

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

Key Takeaways:

• Leveraging tech tools can save time and improve efficiency.

• Networking is crucial for staying updated in the e-commerce space.

• Building relationships can lead to valuable business opportunities.

• Businesses exist to turn a profit or else they're
  just hobbies.
  

Meet Tim Clark

Tim has 25 years of experience selling products online across digital platforms including 15 years selling on Amazon. He has worked at startups helping them fuel profitable growth and has helped enterprise brands implement tech solutions to scale while streamlining efficiencies. Outside of revenue generation, Tim loves networking with good people and seeing young professionals grow in their careers.

Transcript

~~~

00:00 Introduction to Profit-Focused Growth

02:11 Tim Clark's Entrepreneurial Journey

05:57 Transitioning to Amazon Growth Strategy

09:59 Scaling Vendor Central Business

12:35 The Shift to Seller Central

19:37 Navigating Amazon's Complex Structure

25:54 Leveraging Tech Tools for Efficiency

34:41 The Importance of Networking

45:36 RetailRx: Helping Brands Thrive

55:37 Final Thoughts

Jon Blair (00:00)

Yo, yo, yo, what is happening everyone? Welcome back to another episode of the Free to Grow CFO podcast where if you listen to us, you know we're diving deep into conversations about scaling a DTC brand, but we're talking about doing it with a profit -focused mindset. Why? Because businesses exist to turn a profit or else, as I like to say, they're just an expensive hobby. I'm your host, Jon Blair, founder of Free to Grow CFO. We are the go -to outsourced finance and accounting firm for eight and nine figure DTC brands. And as you can see, today I'm here with my buddy Tim Clark from the RetailRx. Tim, what is happening, man?

Tim (00:38)

I just want to know on your podcast are you usually just talking are you using like throwing words out like EBITDA and in the red, in the black, you know, I'm, don't know all the cool like CFO kind of words, but I feel that you have some real good flex ones that you might drop today.

Jon Blair (00:45)

Hahaha

Yeah man, you know what, I'll be looking for opportunities to drop any of that stuff that we can. But you know what, tongue in cheek or not on that, we're all about growing a brand, right? gonna be talking about the connection to growth strategy and profit, right? Because you can't have one without the other. But we wanna be a resource to help brands scale, right? And there's all this,

crap out there about all different kinds of, hacks and tactics. We're trying to get real here. We're here to talk with real entrepreneurs like my buddy Tim and get the real nitty gritty of like what it takes to get in the trenches and scale a brand. And I couldn't think of anyone better to chat about this in the realm of Amazon growth strategy than you Tim. So before we dive into chatting more about I want everyone to hear a little bit about your background and your entrepreneurial journey because quite frankly, before I hit record, I was like, hey Tim, what do you want to talk about? You've done so many different things. You have your hands in so many different areas. What do you want to talk about, man? I feel like we probably have five or six episodes we could possibly do. So let's start a little bit with your background and your journey and then let's go from there.

Tim (02:11)

Yeah, background born and raised San Diego. And I'm 44 years old, which is pretty like I became the older guy recently. Like I feel I'm older guy in the company. And in some of these brackets you fill out, I'm now like bumping up, not a level up definitely, but like.

Jon Blair (02:26)

Yeah

Tim (02:28)

Dude, coming up, I loved video games and I would be playing, you know, Nintendo. I'd go over to a friend's house, play Sega and there was Nintendo Power, the magazine that you could pick up and you can read how to do secret moves that maybe people didn't know. And then there became like this joystick. mean, you would be playing track and field and you would get a pencil and you just like to go really fast.

Jon Blair (02:44)

yeah, I remember that, man.

Yeah

Tim (02:58)

Then they came out with this thing called the NES Advantage and you would hold the button down and it would be turbo and it would just be a game changer.

Jon Blair (03:06)

You

Tim (03:08)

Okay, that little button, a turbo button, that changed my life. I love video games in the arcade sense, which now they're coming back a little bit, but I've always enjoyed finding cheat codes in life that help me, you know, destroy an opponent if you're talking Street Fighter II, but also kind of, I don't know if game is the right word, but all of these platforms.

The eBay's the Amazon the Poshmark the Shopify all of I don't know if they call them Shopify the Amazon but you know, it's it takes a lot of hours they say 10,000 hours to master something and I know anybody in the digital world

If you are truly great at your art, you are putting in that amount of time. And a lot of the Amazon people you meet, a lot of the Shopify people, they're going to be highly ADHD with their minds going all over the place. But that is the way that you need to be able to react to the changes and pivot as necessary and go an entirely different direction. Yeah. Born and raised San Diego, video games, hip hop.

Sports I was always Playing baseball playing soccer playing basketball I was never the best on the field But I took a lot of pride in being a captain and being like yo yo yo come on or a hype man So I've always been that within a company as well if there's Tracksuit Tuesdays going on Like I'm coming when the flyest track suit you know what I mean, so I believe in

Jon Blair (04:36)

Hell yeah.

Yeah

Tim (04:48)

I'm 44, but in my mind, I'm still 15, 16, 17. And dude, haven't stopped, I haven't stopped, monstering up. And it's really cool in e -commerce to actually look at numbers. Top line revenue, always going to be a big thing. But once you get an understanding on your profit dollars, after everything has been clawed away and you see that growing and you see the business owners that you're working under like.

be super stoked and want to give you more budget to grow your business. I love that. And that's the success I've been able to see with Amazon going back to when I started in like 2009, 2010.

Jon Blair (05:28)

2009, 2010, man, I got on Amazon with Guardian Bikes in 2016 and that feels like looking back to 2016, like eight years ago, I feel like that was like the early days. Because in many ways it still was the early days, right, of Amazon. It was such a different platform. But like, going back to the very beginning of you getting on Amazon, like what was Amazon like then that might be surprising to people relative to how it is today?

Tim (05:58)

Yeah, I went to go work for a company called Skills. So Skills later got acquired. They're owned under the Inplus umbrella right now.

and working at Skills We didn't have a lot of people there and there was just kind of this, hey man, if I don't know how to do it, I'm going to learn how to do it. I'm going to figure it out. Sometimes I'm going to completely blow it and make a mistake, but I'm never going to make that mistake again. And there I had an entry level job. I was a logistics coordinator. I never knew what the word logistics meant. I had always worked in warehouses and mail rooms and worked on the flow of goods from

kind of manufacture to the distribution center to end customer if you're talking mailroom. And that was like the early stages of DTC people ordering and then shipping it to customers. anyway, yeah, over at Skills

Jon Blair (06:39)

Mm

Tim (06:50)

It was just one of the many customers that I was helping out the sales team on so my buddy Jeff Shade He ran the sales for some of the big accounts like Sports Authority Kind of wild to say that they're no longer around but Sports Authority Academy big five Amazon that made up kind of Western to Central region which Jeff covered and

Jon Blair (07:04)

Yeah.

Tim (07:14)

I just helped him out and as I was helping him out, I'm like, dude, this is crazy because Amazon carries every single item. Like it's not, know, Walmart might take an item or two, but Amazon carried everything. And then from my days of, yeah, let me stop there before I go on to 17 tangents.

Jon Blair (07:28)

Mm

so how did you transition from that initial role into Amazon growth strategy?

Tim (07:41)

Yeah, yeah, so I was helping out with Amazon and I remember when I started it was $250,000. Probably a top 20 customer of ours as Skills I jumped in, was helping my buddy Jeff and yeah, eventually I took over ownership and I would work with him on it too, but I worked with more teams internally and.

We ramped that business up to 17 million in five years. And I don't have an MBA. There was no Amazon school. There was nothing like that. I was just, I loved relationships. I've always built relationships with vendor managers, with buyers, and I always took.

Jon Blair (08:11)

Wow.

Tim (08:26)

chances, which are really gambles. And it's hard to justify that to a CFO, to a president and things like that. But in order to win on Amazon, yeah, you need to take some gambles.

Jon Blair (08:30)

for sure.

So you guys are selling vendor central. So for those of you that don't know, so it's interesting, there's still plenty of brands that are on vendor central, but I feel like it was bigger back in the day. Like it was more common back in the day. Guardian Bikes.

Tim (08:41)

Yep.

Dude, I remember the days before there was a marketplace. That was just crazy. Yeah.

Jon Blair (08:55)

For sure, yeah, before there was third party sellers, right? Yeah, I know, so like Guardian, when we got on Amazon 2016, both of them were prevalent, but obviously like the third party marketplace or what people know as Amazon Seller Central was starting to grow in popularity. We had a stint with Vendor Central where we sold direct to Amazon. They stock the goods, they're the seller on the listing, right? They take the inventory risk, they buy like big POs at a time.

But I've heard, I don't know if this is true or not, it would make sense based on seeing how few vendor central opportunities I see out there in the marketplace, but that seller central's actually vastly more profitable for Amazon, because they don't take on the inventory risk. It's like they're basically making advertising and service revenue basically for FBA. walk us through really quick

that business that vendor central business from 250k to 17 million like how did you do it? What were some of the mistakes you made like how did you guys pull that off?

Tim (09:59)

Yeah, mistakes we made. I don't know how to forecast anything. Like, I like selling things and knowing, I remember we had this item, it was a weighted jump rope.

Jon Blair (10:05)

Yeah.

Tim (10:11)

Walmart had the item in their stores like every door at Walmart and then all of a sudden they stopped ordering it from us So we had 30,000 units. We didn't have a channel for it. And I said, okay 30,000 units. Can I take some chances on it Tim? What does chant? What do chances mean? Okay. Here's my spreadsheet. Here's my plan This is what I do want to do across promotional dollars then it was that was when PPC was coming on Amazon So like an early mover on that spot

Jon Blair (10:39)

Mm.

Tim (10:41)

where somebody at my company now, shout out Kelsey Olenoff, like she got involved on the advertising side. So at first it was me and my buddy Jeff just kind of figuring it out, talking with all of these people, but as the business grew, you brought in marketing teams. I was sitting with the CFO at all times talking inventory levels, dollars, and different things like that. So it was very fast growth.

and you're not gonna be given like, Tim, go hire four other people right now. It's more, you have these people on your team, how can you get them to help you out? And so that was cool back in the days, know, I'd have different people helping me out on different things. Like I think about Scott Stroman, like he was helping me out on detail, he was a product guy.

Jon Blair (11:22)

Mm

Tim (11:35)

and he was doing product marketing things, getting information for me to build out my website. So now it wasn't me writing all the bullet points, it was Scott, give me some information on the product. Okay, let's figure out a cool way to write this. Now SEO comes into play. we better get the right keywords. And so there's all of these in the digital space.

There are so many shifts and transitions that can literally come out of nowhere. In the early days, man, like there's people that aren't ready for it and they lose market share and in order to get that market share back, you're gonna lose a lot of profit dollars in discounts and advertising. So with Amazon, was promotional dollars and am I getting off here?

Jon Blair (12:05)

for sure.

No, no, no, what I was actually gonna ask is at what point, so at what point did your experience personally start shifting towards seller central or did it?

Tim (12:35)

Yeah, so, you know, there was all of this chatter going back and you mentioned it before that that FBA is more profitable than 1P. I would totally disagree with that because I would run it on some depending on what categories you're in. You're absolutely right.

Jon Blair (12:43)

Yeah.

Well actually just to clarify, what I was talking about is I heard that for Amazon it's more profitable, that they make more money on the third party don't have to buy the inventory, right? Like they don't have to place these big POs and if you think about it, like it's kind of genius in my opinion, right? Because they don't buy inventory, you pay them 15 % as your seller, like listing fee, right? So they just get 15% and then,

Tim (13:01)

boom, boom, Yep. Yes.

Yeah, yeah.

Jon Blair (13:19)

On top of that, you're paying them for storage, for all their warehouse operations, basically paying them as a 3PL. They're arbitraging their shipping rates where they're getting ridiculously killer shipping rates, but they're marking them up and charging them to you. And then you're spending your ad dollars on their platform. And so it's like, it's this like amazing bit. So I've heard that they're trying to get less people on Vendor Central and push them to Seller Central because they make way more money.

Tim (13:39)

it's.

Yeah, and there's been some big developments lately. I don't know if you've you've been up on Amazon 1P news or just Amazon news in general, but There were a lot of brands smaller tier brands Let's say and probably the three one to two million up to ten million vendor central accounts They got an email last week telling them you're not gonna have a buyer anymore. You need to shift over to seller central and that's that's

Jon Blair (14:04)

Mm -hmm.

I heard that.

Tim (14:14)

That's major. Now, the thing is, a lot of these same brands, they didn't have a vendor manager the last couple years to, you know what I mean? if you are wise, you would have been running a hybrid account. A hybrid account meaning you have a 1P vendor central account, and then you have a 3P seller central account. Here's the problem. Amazon doesn't want you doing both. 1P and 3P are siloed.

Jon Blair (14:24)

Mm

Yeah.

Tim (14:42)

They don't work together on a team for Amazon. They are completely siloed. 1P accounts want 3P business. 3P business wants 1P accounts. the other, yeah.

Jon Blair (14:45)

Totally.

Well, hold on, I want to riff on this a little bit more, because you brought up some things that I think a lot of people don't know about. I have experience with this because we did both at Guardian, and we ultimately moved to Seller Central, and then eventually moved off of Amazon a number of years later. But let's dive into this, because I think this is actually something that a lot of people don't, they don't know the inner workings, right? And so, back up really fast. One, just to clarify for everyone, 1P meaning first party.

Again, analogous with vendor central, you're selling direct to Amazon, they're the seller, right? 3P, meaning you're part of the third party marketplace, analogous with Amazon seller central, you are the seller, you as the brand are the seller, you're just using Amazon's site and you're using possibly FBA because you can't get Prime, generally speaking, because seller fulfilled Prime, whole other thing, but that's been largely decremented, right? It used to be a thing, but let's talk about what you were just mentioning with Amazon's structure.

Tim (15:35)

consignment.

Jon Blair (15:51)

and like as an org, right? The seller central, it's like the right arm doesn't know what the left arm's doing. We experienced this at Guardian. Like the people who run vendor central, accounts have nothing to do with the people that run FBA and run Amazon seller central. And they couldn't know less. They don't even know who each other are and getting them connected is next to impossible. Like, can you riff on that a little bit more so people can understand how this all works?

Tim (16:18)

Yeah, so you know originally what was happening on the one piece side is if

You know, over my career, I've worked at several different brands and some of them I had SKU counts from 200 to 300. Okay, it's very easy to lose sight of a SKU or two that goes out of stock for a particular reason. You can have the craziest back in the day, you could have the craziest spreadsheets ever, but a lot of this, unless you're looking at every single detail page often, you're not gonna know what's happening. So as you get better tools to track

Jon Blair (16:38)

Mm -hmm. Mm -hmm.

Tim (16:54)

all of this going on, you might find out in the 1P world or the vendor central world that an item is CRAP out.

can't realize a profit, C -R -A -P. At that point, a vendor central or a vendor manager is going to work with the vendor and they're gonna get, they're gonna say, hey, we have a bad price match in the marketplace and in order for us to be profitable, we're gonna need $2 .11 per unit in funding while this item's at this price unless you can go update the price and work on it yourself.

Jon Blair (17:31)

Mm

Tim (17:32)

So.

from there you have some items that go out of stock or maybe items, you know, Amazon's ordering system is not picking them up. You are losing revenue because of this. So a lot of accounts, 1P accounts would have a 3P account under a different name and just kind of not a shell company per se, but you know, operating kind of on a hush hush independently. Then you're able to ship some units in of this item that Amazon 1P is not ordering. So 3P

Jon Blair (18:02)

Yep.

Tim (18:03)

ship in to FBA, fulfillment by Amazon, now you're starting to ring up some sales at a price point that you control. Boom, you lift.

Jon Blair (18:12)

Yeah, and you're competing with Amazon's 1P listing.

Tim (18:18)

But if they're out of inventory and now you have the buy box, meaning you're the one getting the sales and you're making more margin, now you got something. But then what Amazon's algorithms, they say, we're selling this unit, we don't have inventory, boom. Then you get the order all of a sudden for a lot more than you expected. And what you could do on the 3P side is play some games. I'm not gonna talk about those games.

Jon Blair (18:39)

Yeah.

Tim (18:47)

So then you you're ready to move 3P where 3P they've always had more tools. They've always had reporting They've always had more capabilities to get things done, but 1P vendors Every Sunday night you get all of those replen orders every single week You're going it's nice man. We're on the three peas. Yeah

Jon Blair (19:10)

Okay, okay, hold on. So you just, I literally had this exact experience at Guardian Bikes. So I know exactly what you're talking about. Just like, I know it too well, unfortunately. Because it's a challenge. So like, let's take a step back here. Let's talk about your scaling. You're scaling a brand, right? You have this opportunity to sell direct to Amazon on Vendor Central. What's the beauty of it? Like Tim said, you're getting bulk orders, right? And if you, eventually, this is probably like, we're gonna...

This would take us on a tangent, maybe I just say this and then we shut up about it. But like, if you get really good, which you did at Guardian eventually, we're like, hey, direct import orders, you buy containers straight from the factory. But let's leave that to the side, right? But so let's say it's all domestic, so you're just getting orders like Tim said, weekly, right? And you're fulfilling those, but it's not onesie twosie like on DTC, right? Or even just on Seller Central, where you're one consumer order at a time. You're getting bulk orders. That's nice, right? Because...

for a multitude of reasons, but you have invoices that you can invoice to Amazon that are tens of thousands of dollars or hundreds of thousands of dollars. You can go factor those and borrow against them if you want cash flow immediately. There's all these different things you can do. It's nice to get those bulk orders, right? But what's the downside of all this? We used to get told this all the time, and I know you're gonna probably laugh when I say this, so the vendor manager, how many times did I hear like, yeah, the algorithm's just placing those POs?

And you're like, so there's like this mythical, it's like the Wizard of Oz behind the curtain, right? Everyone's always like, the algorithm, the algorithm, the algorithm. And you're like, hey listen dude, you guys keep buying, the algorithm keeps buying bikes that we know are not good sellers. They're colors, we know this from our DTC site, like why are you buying so many of that color, but the color that crushes it and is already stocked out, because it's already crushed on your Amazon listing,

You're not placing any more POs. And so we would start freaking out because the listing starts losing momentum. We're losing sales, right? People think the bike doesn't exist. And so we started our own Seller Central account and we would just have stock available. We wouldn't have the buy box when Amazon was in stock, but as soon as they went out of stock, we got the buy box, right? And like, quite frankly, we weren't at the time, we weren't necessarily trying to game the system. We were just trying to keep the listing from going down.

But we would be trying to like bang down the door. I'm actually not lying, one quarter, because we ran the company on EOS, we did quarterly planning. We did our quarterly planning in freaking Seattle, and didn't even tell our vendor manager we were showing up in Seattle. We were gonna just try to find him. And we like, we got there, we got there, and we had some meetings with Amazon FBA, the global team, I forget their name. Again, they don't know anything about our vendor manager. Completely different team, right?

but we just emailed our vendor manager like, dude, we're in Seattle, any chance we could meet up for lunch, right? And we had to do that because the freaking algorithm is like, it's just buying all these quantities that make no sense. We're getting forced to have to put up these seller central listings, right, just so that the listing doesn't lose momentum. Mind you, we're spending ad dollars on the vendor central side and on the seller central side. So we're trying to keep momentum and it's just like, it feels like a game of Whac -A -Mole sometimes.

And like no one's actually running the listing. It's just this Wizard of Oz algorithm, you know?

Tim (22:27)

I got a good one.

yeah, yeah, no, but some of the things that I love with Amazon, and this goes back to when I would play Street Fighter II back in 91, 92, there were these moves you can do. Guile could do a touch of death where he threw you without touching you. Doll Seam could turn invisible. Like you could turn off the, different things like that. So what is nice is, all right, let's say you have...

Jon Blair (22:50)

Yeah

Tim (23:01)

used to be able to do some bulk buys with Amazon and I'm trying to think what the program was called. Anyway, you ship in units to Amazon. They're sitting on a lot of stock. After 90 days it hits their aged inventory report and if they haven't been selling anything, they have auto -generated discounts that go.

So then what I would do is I would track that because now all of a sudden you're starting to sell more units. Then I would add a coupon on top of that. Then I would run advertising. Then I would discount it even more. Then all of a sudden this item that was just complete dead stock in your warehouse and their warehouse has finally gotten to a price where consumers want to purchase it. Me on the brand side, I'm literally going, you know, brand store.

Right there, smack on the front. You have an influencer talking about an item, direct them back to Amazon. Loves that external traffic coming over to Amazon. Now what happens, Amazon is moving through all that overstock.

at a crazy rate, but their system's not going, we have it discounted. So then Amazon, who was just completely effed with inventory, they come in and buy a ton of units off full wholesale, knowing that you're never gonna have to fund taking them back as an RTV. So I remember sometimes we'd be in these meetings and I'd say, they're ordering a year and a half supply of this product.

Jon Blair (24:37)

You

Tim (24:39)

And we were like, ship it, ship it, ship it. Get it out, get it out, get it out. And we'd be like, my God. So then it became, how can we get more of these deals placed? And that was like, that was the game, the advertising game. you have so many levers.

Jon Blair (24:53)

Yeah.

Tim (24:57)

You talk about your photography, your hero image, your secondary image, the advertising copy, the brand store, like all of these things can be A/B tested and tweaked till you find that right velocity. Then you get moving. Then your advertising game, it better be on point and you better have the right automations and you better have the right rules set up or else there's going to be a ton of wasted cash. Ton of wasted cash.

Jon Blair (25:24)

Okay, so I wanna drill into that. You've mentioned a couple times tech tools. You just mentioned automation. like, again, to set the backdrop for everybody, you have a big product catalog. You can't police. It's like, know, at Guardian Bikes, we didn't necessarily have this problem. We had like six or seven SKUs, maybe eight SKUs on Amazon. That's one thing. You've got several hundred SKUs. You're cranking on volume. Like, it's becoming more more complicated to like police things. Maybe you have vendor central as well.

Tim (25:29)

Yep.

Sure.

Jon Blair (25:54)

vendor and seller, even if you're just on Seller Central and you have several hundred SKUs. It's a lot to manage. What are some of the, I mean just run through some things that come to mind in terms of tech tools or automations or whatever that have been super, super helpful as you've grown these different brands on Amazon.

Tim (26:15)

Yeah, well, my experience going back to 2009 and 2010 really up until now is I've done the operations side. I know all of the pain points there and there's a lot of pain points and I've served every role on the Amazon side, including brand owner, because I have an additional brand called Second Childhood that's over to the side that's on 3P. But then, yeah, with that...

tools. You're growing a business. Okay, if a brand is growing itself, then you probably have other retailers are growing. Maybe your Dick's Sporting Goods business is growing and everybody's battling for advertising budget. Everybody wants headcount. you know, I would ask for headcount. And a lot of times it would be met with why can't you just do it?

And at first I'm like, dude, I'm already doing this, that and the third and things like that. And then I don't know. I've always had business leaders that would throw challenges on my lap to see how I'd handle it. And what I started to do is learn that I don't need to be inside of every single advertising campaign. I might have 200 advertising campaigns open that I'm going in manually. Okay. You bring on the right advertising tool.

They collect all that data. Then you set up rules for every ad campaign. Hey, if you have seven clicks and no sales and you've spent $10 over the past seven days, I want you to bring that bid down by 30 % or maybe I want you to negate it. And so you're now applying these smart logics to a portion of your business. But then...

I mean, I remember I used to have somebody that would help me every single week go to every ASIN, every Amazon detail page and mark what the price is so I could find out what had dropped and I could sell more.

Jon Blair (28:22)

Mm.

Tim (28:22)

Then all of a sudden you get these dashboards where it's like, you're tracking my BSR, my best seller ranking. When I see a best seller ranking improve, I'm literally, I'm going back to Street Fighter 2. I'm hitting the button because you have to move quick. Once you see an opening, you go hard because then you have the chance to break a bank. When you break a bank in the Amazon world, it feels amazing.

But these different tools, like I learned that I could do a lot of it myself. And then I started taking things like advertising that was taking me 15 hours per week. I got it down to 30 minutes a week. Just think all that, yeah.

Jon Blair (28:56)

Mm -hmm.

Wow. I know these tools are changing all the time, but what were some of the ones that you've used over the years that really were the most impactful?

Tim (29:12)

Dude, I mean,

Jon Blair (29:13)

just thinking about Pacvue from back in 2016. We were using that on our Amazon. Is Pacvue still around?

Tim (29:20)

No, I got I No, it was funny man. I got I Got to go to a conference. It was the IRCE show In Chicago internet retailer conference. I don't know what it stands for. I literally went to every single booth

Jon Blair (29:27)

Mm

Tim (29:38)

And talked with these people and they all gave me their pitch and I took away brochures I went back to my hotel at night. I had the craziest amount of imposter syndrome I've ever had because I'm like, how am I gonna learn all of these tools? Then when you kind of figure out how to use a fool it was Okay, then let me go back there. I got all these brochures. I'm trying to figure it out. my god, they all cost money What am I gonna do? I developed an early relationship

Jon Blair (29:52)

Mm -hmm.

Tim (30:07)

with Intentwise Intentwise on Amazon advertising side but me and Sreenath Ready yes

Jon Blair (30:08)

okay.

Yep.

that's their CEO, right? Isn't Sreenath their CEO? Yeah.

Tim (30:17)

Sreenath and I, we sat at a table at the IRCE and we sat and we talked about life, man, because I was on his platform and I bailed to go to Teikametrics, take a metrics, whatever it's called. You do that. You jump into new software because you want to see what can help you. Then I eventually came back to Sreenath.

Jon Blair (30:35)

Mm

Tim (30:38)

And Sreenath's always been a homie of mine. Like that dude looks out for me. I know what's going on in his family. Now ask me about my family and it's a real relationship. And so I worked with him very early on him and Raghu like building the platform. I would help them close customers and different things like that. But I learned how you can use this tech tool to save a lot of time. So it really started with Sreenath Ready And then from there.

Jon Blair (31:04)

How long has Intentwise been around for? I know who they are and I know them through Straight Up Growth, but how long have they been around for? Like how long have you known them for?

Tim (31:07)

Dude.

I would say like seven, six, seven years or something like that. And then I honestly, my whole hustle was I would see who was gonna be on Sreenath's podcast. And I would listen to these people just like you're doing and I'd say, wow, I wanna be friends with this guy. And I'd hit these people up and form relationships.

Jon Blair (31:18)

You okay?

Tim (31:36)

So along the way, there used to not be as many tools. Okay? But when you can take Daniela Bolzmann do you know Daniela?

Jon Blair (31:40)

Yeah.

Yeah, from, why am I blanking on her? The name of her company. Yeah, Mindful Goods, yeah.

Tim (31:48)

Mindful Goods, expert level, okay? Like what she does to a detail page. All right, you give them an ASIN. Then she shows, yeah, yeah, we can do new hero images, new secondary images. We're gonna do this. We're gonna update your copy. Then on your brand store, we're gonna do this.

For me, sometimes working at brands, you don't have those resource available to you. So somebody like, somebody like Daniella can give you amazing feedback on your detail page you never would have thought of. Then all of a sudden you have a tool. If you have an ASIN that needs a lot of love and you don't have the resources internally, you work with somebody like a Mindful Goods. There's ways where you can get money. I don't know, there's all of these hacks within the business, yeah.

Jon Blair (32:13)

Totally.

Mm

Totally. Well, no, I think you're bringing up a good point, which is that you don't have to bring, you don't have to do all these things yourself. You don't have to staff them all up with internal employees, right? Whether we're talking about, just to summarize a few things that you've mentioned, like going through all of your ASINs or like dealing with all of the campaign like bid strategies one by one, right? Or, you know, Daniela, we actually have a few mutual clients. Her company's been fantastic on,

getting listings optimized, which optimized listings both from a content standpoint, like creative slash content, and an SEO or keyword standpoint, super important for Amazon because it's so pay per click driven, right? And there's so much competition and it's not the same. When you drive someone to your Shopify store, they're not looking at another brand, right?

next to it on the same page, right? It's not the same strategy on Amazon as it is on your DTC store. And so I think the point that you're making that's super important is that like you don't in today's world, there's tech tools and there's outsourced service providers who can specialize in that thing that you need support on, right? And like, I mean, I I know brands that have a 10, 15, $20 million Amazon business

And their Amazon team internally is very small. It's either one person who's just like the director of Amazon or VP of Amazon or their VP of growth. Amazon is just one of the things that that person oversees and it's literally all tech tools and agencies or outsourced service providers that basically run that channel. It was a bit different in my experience 10 years ago.

You saw a lot of huge Amazon brands before Amazon got even more competitive that maybe like built a business to like 50 million a year on revenue or in revenue on Amazon and they had like a little Amazon department, but you don't really need that anymore. At least in my opinion. Do you agree?

Tim (34:41)

Yeah, I agree and I just, you you have some shared resources. Normally, I don't know what the brands I'm working at were in Amazon businesses anywhere from five to 15 million. You probably have maybe two people working on it and those people literally know how to do everything top to bottom. Now,

Jon Blair (35:00)

for sure.

Tim (35:02)

Then when you start scaling, you have more cash flow to operate out of as long as you're keeping your A cost down on the advertising and things like that, which is a challenge because there's more competition than ever. But.

was just always open to free audits. Anybody who wants to audit my business and give me feedback, I would take all the constructive criticism and I could wear it. I know there's a lot of people internally though, is they don't want their higher ups or they don't want these audits run because if somebody comes back and says, hey, you have 10 ,000 wasted dollars on this ASIN the last 30 days, somebody gets like super defensive. I just wasn't like that and I was able to

Jon Blair (35:41)

Mm -hmm.

for sure.

Tim (35:47)

get these software tools implemented, not all of them, but you get a few implemented and you can actually show how much time is being saved. And then you say, hey, with these seven extra hours per week, this is where I'm dedicating time and this is how I'm growing the business. And then it just becomes, the software tools can, you don't want them to be interchangeable. It would be nice that you could set it and forget it, but.

On the advertising side, you you mentioned PacView, there's IntentWise, there's literally Tenuity can manage your advertising. Straight up growth like Daniel. Daniel's a wizard when it comes to all of this. When I had him audit my business at CleverMade, I was like, dude, man, and Mark was, you know what, I'm like, you know, cause I'm like, he's gonna find a, here's the thing, man, you're never gonna be the best at anything.

Jon Blair (36:24)

Yeah, yeah, he is

Tim (36:40)

You gotta lean on other people that have these niches that they're amazing at. What Daniel was able to do on the advertising side. What Daniella was able to do. What Sreenath's been able to do. What Rohan's been able to do. Like if you're talking revenue recovery, all these different businesses. know, Rohan, what he's done with DimeTide. The technology, it's really the tech players that are involved.

And when you see rapid growth in a tech space and you see the maintenance on the tech improving constantly, it gives you that confidence to keep using it for your business.

Jon Blair (37:15)

I mean, I think there's a really important lesson for everyone to draw out of all of this, right? Is that the eComm brands of 2024 and beyond are scrappy, right? Like there is a period during COVID where brands got fat because honestly, because venture capital was chasing eComm because during COVID it was like, man, that was an asset bubble that was popping off, right? And during asset bubbles,

capital, outside capital gets attracted to that asset bubble. The people who are operating businesses in that asset bubble get fat, right? Their businesses get fat with overhead, they get lazy, they don't have the constraints of being profit -focused, right, and being capital -efficient. But those days are behind us, right? That bubble has burst, and now we're back to running scrappy e -com brands, right? That enlarged.

Tim (38:07)

I love it man. I love it and and you really like the LinkedIn game say what you want about LinkedIn but I go on to the feed and I read Martin Heibel I don't even know if it's Hubel or Heibel it's this dude out in UK the dude drops absolute gems about Amazon with fire emojis and all of this and you know if you're following him

Destiny Watson, I think that's her name. Like she's, you follow these five to 10 influencers in the Amazon space who drop knowledge. dude, when they would talk about Amazon, I would just be like.

Jon Blair (38:38)

Mm

Tim (38:51)

taking notes, learning, then going into vendor central groups on LinkedIn, seeing what people are talking about. You can't just kick it and do the same things you were doing a year ago. You have to go to these conferences. You have to listen. You have to talk to people. It's exhausting to network, but guess what, dude? You're gonna meet new people that are doing different things that you're not doing that you're gonna have to apply to your business. If you do exactly what you did last year, you're losing the next year. You're losing and somebody's coming to eat your lunch.

Jon Blair (39:19)

You know what, it's interesting, you know what I'm realizing right now, Tim, as we've just been riffing on various aspects of scaling an Amazon business, one thing that you've said in basically some area of your response to every question I've asked, you've talked about the relationship and the networking aspect of that thing,

whether it's like seeking out the tech tools or it's seeking out the right service providers or you're saying like following influencers or going to conferences and like trying to consume content, the bottom line is if you're scaling an eComm brand on Amazon and or your Shopify store, things are changing all the time. eComm is a hard space and it's always changing. And one of the ways that you keep up with the game,

is consume content and stay active in your network. What I always like to say is like you as the brand founder, you have got to create the space to get outside of your business, right? You've got to have the right systems, processes, and people in place to get outside of your business and get out into the marketplace to hear the chatter about what's going on. That's how you see around corners. That's how you stay up with the evolution and the thing about eComm.

is the one thing that's always gonna be the same is it's always gonna be evolving and it's always gonna be evolving super fast. so definitely take some of these stories that Tim has told here today and internalize that and go like, man, here's a guy who's been hustling to create a network and in that network gone like bam, here's all these resources that I can use to scale this Amazon business.

And you should be doing those things in your eComm brand as well. Don't ever underestimate the power of getting out into the marketplace, forging relationships, and drawing on those resources because it's gonna serve you super well. And I would even say it's 100 % necessary if you're gonna scale successfully over the long term.

Tim (41:25)

How crazy is this? Like, do you know what's, okay, so when I say revenue recovery, do you know what revenue recovery is? I don't know, like to me it's...

Jon Blair (41:32)

I -I -I -I do, but can you explain it for the audience?

Tim (41:37)

Yeah, you know, okay, Amazon's remittance process.

Okay, you got Cathy in accounting who's trying to make sense of however many Amazon fulfillment centers there are. Then when you have the weekly replen orders, you're sending out sometimes orders to every single distribution center that Amazon has. Then if you have 100 to 200 SKUs, think of how many line items are getting processed. Then Amazon takes their various backend deductions.

but they do it off a deduct from payment. So it's a chaotic remittance process where you're unable to tie things up from a cash application process. So you no longer can go after these, you know, on 1P you have backend programs. have co -op, have defective allowance, freight allowance. On the 3P side, you have FBA fees. Then you have like in -boundship. And so there's all of these things where Amazon,

takes money from you, but it's not, they're not doing it in a malicious way by any means. Like, dude, look how much Amazon scale. Do you think they're having the same issues that brands have as well? But there's these automated tools, some automated, some manual, some a mix that'll audit. They'll go back.

Jon Blair (42:36)

Mm

Totally.

Tim (42:57)

18 months they'll go back a few you know all the way up like three years and they'll go try to find dollars for you that you haven't been able to get with no work from your team Hey, what if I say hey Jon, do you want some free money right now? What would you say?

Jon Blair (43:14)

Yeah, I'm in. I'm in.

Tim (43:16)

Okay, now the people below you are saying, hey, if I show you that I'm gonna give you free money, then they're gonna look like they're not doing their job right. That's not the narrative. The narrative is, dude, you can't hire 15 people in accounting. So if you use these revenue recovery tools to audit back business, you go find money, you don't have to do anything. Literally all the disputes are filed, and you get money back directly from Amazon.

Jon Blair (43:24)

for sure. Yeah.

Tim (43:46)

on the 3P side, on the FBA side, used to be able to go back 18 months. Okay, you're talking loss damage, you're talking inbound shipments, FBA fees, these disposals, different things like that. Because I worked on the software side. I worked for ThreeCult, so I saw all this. Dude, October 23rd, you can only look 60 days back.

Jon Blair (43:53)

Mm

that sucks.

Tim (44:11)

It sucks, dude, there's so many brands that go back and get the 18 months and they're like, no, they're asleep at the wheel. They're asleep at the wheel. And it's crazy to me. You literally have one month to go get money back that you're not going to get ever again. And people are like, no, we got Cindy who handles all of that. And I'm like,

Jon Blair (44:28)

No, it's way too much work. So you know, 10 years ago or eight years ago, we were doing all that reconciliation ourselves with Guardian Bikes. Before these, some of these tools existed, but it was like they weren't as prevalent. We did all this manually. And I'm gonna just say right now for the audience, it is a ton of work and it's not worth the effort of the team if you can just outsource it. And probably, I would say outsourcing get better results actually. Like these tools are...

they find way more money than your team could find and you just pay them a cut and you still net way more than you would net if you did it yourself and you don't distract the team, you don't distract your team from where they can really add value. like what Tim is saying is like a very good example of how to leverage some of these services and or tech tools to go a lot further faster on your Amazon business. And a lot of times they're,

they're little known to a lot of brands, which actually leads me to my next thing. What I wanted to ask you about, Tim, is the RetailRx. What do you guys do at the RetailRx, and how do you help brands?

Tim (45:36)

man, it's crazy story, you know, so I've been on the brand side forever, you know, running Amazon business, but also going and calling on brick and mortar accounts, going to Bed Bath and Beyond for line reviews or Sports Authority Academy like these different ones. so I've just gained a lot of experience. And as I've used some of these software tools, I just saw that. Wow.

These tools are something that nobody's really using. And so I started to use my network to tell them like, hey, you know, have you tried Intentwise for advertising? No, we don't do anything for advertising. do, you know, so then I started talking about these various tools. So then I set up referral agreements with some of the solutions that I thought were best. And then the way it would work is I just use my network. I talked to a lot of the same people I'm talking with anyway.

Jon Blair (46:06)

Hmm.

Tim (46:32)

We're sharing tips. Like that's always happening. But now I have these tools and I've just spent a lot more time. I'm 100 % software world. I'm like tech tools and all of that. And so now I'm not on the brand side like I was in the past, but I'm able to help so many brands with these tools that they never knew about. Herschel Supply Company. I wear Herschel Supply Company. Like I love Herschel Supply Company.

Dude, found them a lot of money and helped with processes and visibility where, dude, that's major. So I'm able to work with brands with The Retail RX that I really care about and help them. And I'm the guy who opens up a jacket and has six different solutions to offer you.

Jon Blair (47:22)

Hell yeah.

Tim (47:23)

But brands don't pay me a penny. I get my cut from the solution. So they get free agency like help working with me. And then I give them a prescription to a healthy bottom line. That's the Rx. Well, dude, what happened was like during the pandemic.

Jon Blair (47:31)

Yeah.

I love it, hence retail RX. I love that, man.

Tim (47:44)

I deal with lot of mental health stuff myself. I'm not on pills, right? I've been on pills, you know, struggle sleeping, all of this. A lot of people on the digital side, we got the same struggles. Just a lot of people don't bring it up. During the pandemic.

I was like a therapist to a lot of people working at the company and here I'm going to get help, but I saw a lot of other people needed help. And so it just became, yeah, let's be friends with each other. Let's gain confidence. Then I'll talk about ways you can help your business. And I'm not that sales person going, Hey, you need to do this, this moment. No, I'm going to be, dude, what's going on? What music you listening to? What's going on with the Mets? The Mets need to slow down because my Padres are going, you know, when you build these types of relationships,

Then it's a yo check this out check this out and so now I'm selling software, but I'm selling To be able to go to somebody at a business find them money that they didn't know about they get to bring it to their boss and say I just found X amount of dollars if their boss treats them, right

It's not a pat on the back. It's not a high five. It's a, I'm giving you some, I'm giving you other opportunities or I'm gonna give you more money to spend on your Amazon business and to double triple what you're already doing. So now when you see that you can empower a director of eComm an account manager or something like this, normally it took them 10 hours a week to build their reports via spreadsheet.

work with like a merchant spring and you just get all of that data coming over. You work with Serenath who feeds the data over. You got to have somebody that can do sequel on your side. You got to have somebody that can build reports. That's somebody like a Scott Kennedy who's a G in the space. And so you really have to know you're never going to be on top of your game. So just know that.

But no, if you leverage the right tools, you can get up ahead of things. And then if anybody up above asks you about your business, what do you need? A report here, advertising info here, stock levels here, boom, boom, boom. You know how many ad hoc reports I used to have to do working at the corporate level that would take, where I'm not good at spreadsheets? I can do a V lookup, like you want me to do, no, no. Now.

just use dashboards and then you do data dumps and you do some pivot tables you put it into a it's clean so if people can just people if just can say hey I can't do everything let me use software tools then maybe you get to go watch Suzy play your soccer game at 3 30 p or go to a soccer practice or something like that because I've long been that guy like no I got to do this no use some software tools

Jon Blair (50:17)

I love that.

love that. for those of you who are interested in what Tim can connect you with, well a couple of things. One, what Tim's walking through here is that like the reality is that there are things you should be doing in your business and there things you shouldn't be doing in your business. But it doesn't mean that just because you shouldn't be doing them, those things don't need to still get done, right? And you know, we're in the year 2024 in the eComm world.

One of the great things is data availability, right? So there's like software tools out there that can help get all those things done, but give you the insights that you need to make really valuable scaling decisions, right? So it's just kind of like leveling you up to another level. you can go do that research yourself, or you can save a lot of time and a lot of money, and you can go to a guy like Tim at The Retail RX and you can just get the menu.

as he learns more about you and your business, you can get the menu of what he thinks can help you and why, right? So again, going further faster. like, Tim, like, before we shut down for this episode, where can people find more about you and The Retail RX if they're like, man, I'm like interested in learning more about these tech tools, right? Like, where can people find you? Where can people find more about The Retail RX?

Tim (51:57)

LinkedIn is going to be the main spot. Just LinkedIn, my own profile. Yeah, I post a lot of random stuff about tech, but it's all under Tim Clark. RetailRx, you know, I need to get some posts going on there, but I don't know. I don't want to say the wrong thing. You know what I mean? It's kind of anxiety posting different things like that. But yeah, reach out to Tim Clark and...

Jon Blair (52:00)

Tim Clark.

Nah, you just gotta go for it, man. You gotta just go for it.

Tim (52:23)

Another thing that I wanted to point out, I know as you're trying to end this, but like I met you through what Evan and Daniel did. They threw a happy hour. Like I got outside my comfort zone and started talking with Evan, started talking with Daniel, started talking with Sreenath, started like over and over all these names, but we were on that happy hour.

Jon Blair (52:36)

Yep.

Totally.

Tim (52:49)

There was 12 people. They gave us a DoorDash gift card so everybody got food. I walked away with like friendships out of there. Juran's my homie. Juran, everybody needs to follow Juran. That dude is hilarious, but it's not, it was Daniela, it was Juran, and it made people like normal at a time that wasn't normal. So like go to these conferences. Figure out who to watch. Dude, follow.

Jon Blair (52:55)

Yep.

Totally.

for sure.

Tim (53:19)

follow these people, watch the moves they're making, and then reach out to them. Because even if you think you...

Jon Blair (53:21)

Mm

Yeah, connect with them. real people, right? Look, I actually love this, Tim, that you're calling everyone to action here, like to wrap this all up, because again, if there's one thing that we've talked about over and over again in this episode, it's the networking, right? Yeah, we're talking about Amazon growth strategy. We're talking about how tech tools can aid you in going further faster. But at the end of the day,

Tim (53:33)

Yeah.

Jon Blair (53:53)

How did Tim find all these things? What has been a common thread in Tim's journey networking with people, right? And some of these other things we've talked about have just been the result of that. And Tim's exactly right. You're exactly right, man. I met you on that virtual happy hour. And actually I have got several people from that. That's how I know Daniela.

There's, you know, the other guys over at ATTN Agency who are down there in SD with you guys. We're super tight with them now.

Tim (54:19)

Bobby, whoever Bobby is, I saw these other.

Jon Blair (54:22)

Bobby, Bobby came to funniest thing a few months after that Bobby came to Austin where I'm at and was like, I'm gonna be in Austin. Like, let's go to dinner. And like we're good friends now. We have several mutual clients. They're a great agency. And I think what you're saying is important, which is that like, get out of your business, get out of your comfort zone, go reach out to people virtually and in person, go to these things.

Tim (54:46)

Yeah.

Jon Blair (54:47)

They're worth it and I will, here's how I'll kind of like tie a bow on this. At Free to Grow CFO, if you follow my content, one thing I talk about is our core values. Our first core value, it's first because it's most important, it's relationships. We're in the relationship business. We're not in the accounting and finance business. We're not in the scaling e -com brand business. We do those things but we're in the relationship business. Business.

is relationships. don't care what you sell, I care if it's a service, I don't care if it's a product, business is relationships. You study any, Andrew Carnegie, if you go back and you look at Mark Cuban, they all have very interesting stories around their ability to network and forge relationships. And so if there's one thing you can take away from this episode, it's that. Get out there, network.

connect with people, get out of your business, learn what's going on and take advantage of that thing that makes us uniquely human, right? Which is the ability to have real relationships. So, man, Tim, I love this. I'm gonna have to.

Tim (55:57)

I messed up that girl's name, can't. Dude, I don't even know. don't like I'm trying.

Jon Blair (56:00)

What was it?

You can't find it. can't find it. I'm gonna have to have you. You're gonna have to look that up. We're gonna have you back again in the.

Tim (56:08)

no, no, no, no, no, no,

Jon Blair (56:13)

Okay, you weren't that far off. think you said Watson.

Tim (56:17)

Yes, maybe her name used to be Watson. I don't know, but she's a good follow. Daniel Tejada, the guy Martin out in the UK. There's a guy named Don who drops gems. I'm trying to, Don Sullivan maybe. I don't know. Follow the right people. See what they have to say about Amazon. yeah, man, new pleasure to come on. Like I feel like we might have our own podcast after this. Like let's go.

Jon Blair (56:20)

Ha

Well, did you stop doing the RetailRx podcast?

Tim (56:46)

No, I'm gonna bring it back. it was, was my, know what I mean? Like it evolved probably more into like a mid 90s podcast, which is another one of my brand that's, you know, but.

It's really just somebody coming over shooting the shit and then showing some normalcy in everybody's life. And I think work life balance is a huge piece of this all. So all of these people working so hard, doing software hacks, different things like that also have some hobbies that are away from your work and not on your computer and things like that because it's only gonna make you better for everything that you're doing going forward.

Jon Blair (57:21)

I agree man, when you bring that back, hit me up, cause I'm from SoCal, I'll fly out to go see my parents for the week, I'll come down to San Diego and we'll talk about my days actually in San Diego playing in a signed thrash metal band. We played brick by brick, Jumping Turtle, Soma, the whole nine yards. that's, if you bring that back, I wanna be the first one back on that show and we're gonna be talking about my band that I...

Tim (57:28)

Yes. Yes.

Yes, dude.

I might grow, should we grow our hair out for it and just have like, okay.

Jon Blair (57:51)

Dude, I'm in, I'm in, I'm in. But yeah man, I appreciate you coming on man, this is definitely not our last conversation. Check out Tim on LinkedIn. If you're interested in how he could help you, definitely hit him up. And you know, as you guys know, if you want any more helpful tips on scaling a profit focused DTC brand, consider following me, Jon Blair on LinkedIn. And if you're interested in learning more about how Free to Grow CFOs,

DTC accountants and fractional CFOs can help you increase profit and cash flow as you scale. Hit us up, you can find us on our website, freetogrowcfo.com, and until next time, scale on.

Tim (58:31)

Scale on.

Growth vs. Profit: Can Your DTC Brand Have Both?

Episode Summary

This week on the Free to Grow CFO Podcast, Jon Blair chats with Dylan Byers, to discuss the speed of scale versus profitability for DTC brands. As DTC businesses strive to scale, many founders find themselves caught between driving rapid customer acquisition and keeping their bottom line healthy. Dylan, co-founder of Aplo Group, brings his extensive experience in growth marketing and financial modeling to explain how brands can navigate this complex landscape. He explains how financial modeling, growth marketing, and a deep understanding of margins can make all the difference in staying profitable as you grow. Listen in as Jon and Dylan dive deep into the strategies that help brands grow fast without sacrificing profitability. With clear, actionable advice, this episode offers a roadmap for DTC brands aiming to achieve both aggressive growth and financial health.

Episode Links

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

Dylan Byers - https://www.linkedin.com/in/dylan-byers-046010149/

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

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

Key Takeaways:

• Understanding the economics of acquiring new customers versus driving repeat purchase is key to achieving profitability.

• Financial modeling and forecasting can help optimize growth marketing strategies.

• High operating leverage and gross margin
  can enable faster growth and more efficient
  cash flow.

• High velocity of lifetime value and repeat
  purchase can subsidize the acquisition of
  less profitable new customers.
  

Meet Dylan Byers

Dylan has worked with dozens of e-commerce brands ranging from 6 to 9 figures in revenue, bringing a strong background in consulting, media buying, and email/SMS strategy. Dylan thrives on the challenge of unlocking growth opportunities for clients.

At Aplo Group, Dylan's main role involves collaborating with the growth team to design and implement scaling strategies based on each client’s unique revenue and profit targets.

Transcript

~~~

00:00 - Introduction and Overview

08:00 - Can a DTC Brand Have Its Cake and Eat It Too?

13:09 - The Importance of Financials and Balance Sheet

18:12 - The Role of Gross Margin and Operating Leverage

24:37 - The Benefits of LTV-Based Businesses

26:27 - Fundamental Laws of CPM Costs and Diminishing Returns

28:21 - Building a Brand and Finding a Competitive Advantage

33:29 - The Limited Impact of Facebook Ads on LTV

40:36 - Simplicity and High-Leverage Tasks in Email and SMS

46:39 - Final Thoughts

Jon Blair (00:02.198)

Hey, hey, hey, what's happening everyone? Welcome back to another episode of the Free to Grow CFO podcast where we dive deep into conversations about scaling a DTC brand, but only with a profit focused mindset, because that's what we care about over here. I'm your host, Jon Blair, founder of Free to Grow CFO. We are the go -to outsource finance and accounting firm for eight and nine figure DTC brands. And today I'm here with my buddy, Dylan Byers, co -founder of Aplo Group a growth marketing agency that we collaborate with. Dylan, what's happening, man?

Dylan Byers (00:35.019)

Not much, happy to be here.

Jon Blair (00:37.42)

Yeah, man. This is actually my second call today with Dylan. We actually have a mutual client and we're on a client call earlier today. So should be able to nail this one because we've we've this is not a dry run. We've already chatted today and we're on and actually we're chatting about some of the exact same things we're going to be chatting about on this episode. So so what are we talking about today and why should you care? Well, what we're talking about today is the speed of scale versus profitability, right? How to strategically balance new customer acquisition with repeat purchase. Because the bottom line is, the way that I like to explain it is, too many brands out there like to have their cake and eat it too. They want to grow super crazy fast, but they also want to be super crazy profitable. And the reality is, when it comes to profitability, there's a lot of drivers of profitability, but when you start talking about profitability in the context of like speed of growth, you really have to, it really in my mind comes down to balancing the economics of acquiring new customers versus driving repeat purchase. So we're gonna get deep into that today, you don't wanna miss it. But before we do, I'd love to learn a little bit more about your background and your journey to co-founding Aplo

Dylan Byers (01:58.22)

Absolutely. So I got my start in eComm on an eCommerce business that I had two other co-founders at Aplo Group, Jacob Paddock and Liam Veregin And Liam and I had a business prior to Aplo Group, you know, didn't end up panning out, but it was a great learning experience. And that was about, I'd say roughly eight, nine years ago now. And in that experience, kind of got an initial taste for all things eComm. It was a great experience. I took that experience, jumped into agency work, worked at a email marketing agency for a little bit. And then eventually along with Liam and Jacob launched Aplo Group and initially started it as an email agency, eventually added paid ads. And now we really focus on growth marketing as a whole. So also do some financial modeling and forecasting work and kind of getting into today's conversation topics are really, really focused about kind of that balance between both growth and profitability.

So day -to -day at Aplo, I oversee our paid ads side of things. I do dabble a little bit in email and SMS still. It's all part of one giant funnel, but functionally, most of my work is in the paid ad space nowadays.

Jon Blair (03:12.686)

Love it, yeah. You know what? We met Liam originally at a conference, I believe in New York, or some event in New York. Okay, yeah, so you met my partner Jeff. And here's the reality. Performance marketing agencies, most of them don't call themselves growth marketing agencies. I actually like the name growth marketing agency better, but performance marketing agencies.

Dylan Byers (03:20.619)

Yeah, yeah. I was there too. I was there too.

Jon Blair (03:38.942)

They are a dime a dozen. There's so many of them, right? And like, there's this, I don't know, I don't believe it's a, there's been this emerging trend, I'm putting this in air quotes for those of you who watching the video of this episode, emerging trend of like talking about profit first, right? The reality is profit first has always been there. Businesses exist to turn a profit or else it's just an expensive hobby. That's the way that I like to explain it, right? But when there's an asset bubble, profitability, profit first.

can be set aside in the middle of asset bubbles. And that's not just in the Ecom asset bubble that we saw like, you know, during and post COVID, but that happens in every asset bubble. I think there's an asset bubble right now, an AI, right? And like, so like whenever venture money comes in and says, we don't care about profitability, we just care about growth. And investor money is basically like, you know, driving an asset bubble. That's when people forget about profitability. But what happens when that bubble bursts? Back to the fundamentals, which is a business exists to be profitable. So I actually think profit first has, that's just business, right? But now that people are talking about it, marketing agencies in the e -comm world are getting forced, their feet are getting held to the fire, right? In ways that it wasn't, you know, a few years ago. And the ones who get it, are excelling and the ones who don't, I believe, are being found out. Little by little, they're being found out, right? That they don't really understand the connection between what they're doing in growth and performance marketing and profitability. And so, what makes you guys different at Aplo from what I would call the average run-of-the-mill dime -a -dozen eCommerce marketing agency?

Dylan Byers (05:27.991)

Yeah, so a little bit over two years now coming up on three actually, we rolled out financial modeling and forecasting as a core kind of competency in most of our growth marketing clients. So for growth marketing to us, what that means is we're basically serving you on both paid acquisition as well as email and SMS. And I think part of the reason why we saw this trend a little bit early on was because we actually came from an email and SMS background first, which is functionally.

retention and trying to improve LTV, improve return on customer rates, so on and so forth. So we really understood that that return customer revenue from a contribution margin standpoint, which to me or to us is essentially profit after variable costs taken into account, not necessarily your fixed costs on a per unit sold basis, return customers often have a lot more contribution there. So when we looked at the ad space and looked at how everyone was setting up, you know, their KPIs and measurements and whatnot, we were like,

Jon Blair (05:57.24)

Mm

Dylan Byers (06:24.93)

this just doesn't make any sense. Like there has to be some relationship between first time and returning customer sales. And we had already had some experience with forecasting return customer revenue because to properly build an email strategy out, you kind of have to be doing that. So that's really how we got started into that. And I think that is functionally one of our primary differentiators. And there's a, I think there's a handful of agencies now that also focus in a similar space. And like my biggest advice is like, if you're going to work with a growth marketing agency, make sure they, you know,

Jon Blair (06:30.295)

Yep. Yep.

Dylan Byers (06:54.082)

have like a deep understanding of your financials and the financial outcomes you're trying to drive. Because if they don't, it's not necessarily that it can't work, but it's a piece of context that in my opinion is very much needed to properly allocate budgets inside of an ad account. So I think that's our biggest differentiator. At the end of the day, we know that brands care about one of two things, top line growth and or bottom line profit. And it's always a relationship between the two.

Jon Blair (07:22.382)

Totally.

Dylan Byers (07:22.419)

and we hold ourselves to the standard of that outcome, not what Facebook says or TikTok says or Klaviyo says or so on and so forth.

Jon Blair (07:29.826)

Yeah, I love it, I love it. That's where we really hit it off with Liam and have been excited to work with you on a mutual client. So here's the million dollar question of the episode. Can a growing D2C brand have its cake and eat it too? I .e. can they scale as fast as they want and also be wildly profitable?

Dylan Byers (07:59.117)

The on a dollar value basis maybe on a percentage basis probably not no Obviously if you take it as I feel like stretch it to an extreme so like I'll give you an example Let's say that you have a business that has a breakeven new customer ROAS of 2x Which is not uncommon ideally most businesses have better margins than that, but let's just say 2x

Jon Blair (08:08.124)

Mmm. I love that.

Yep.

Dylan Byers (08:26.222)

and return customer revenue is currently sitting at 30 or 40 % of the overall revenue pie. If you scale acquisition dramatically and maybe you have a huge total additional market, you have great ad account structure, a great large volume of winning creative, maybe you can keep on scaling it more and more and more. You're more and more new customers right around your break even point. The problem with that is that's adding like immediately basically nothing to your bottom line. So you're doing more in sales, but immediately in that...

period of time, whatever you want to measure it, let's call it a month, there is functionally no additional contribution margin added to your bottom line. Return customer revenue is somewhat fixed. Like you control it somewhat via things like sales, promotions, product launches, affected email and SMS strategy, but you're working in a fixed realm because there's only so many people you've acquired before. And that will not scale linearly most of the time if you're scaling super quickly. So to answer your point there, like, yes, you can have great profits there because you're not necessarily making less money.

but you're not making more money proportionally until that new customer cohort actually compounds over time. And the key thing there is that varies business to business. Like some businesses have terrible LTV, some have great LTV. And it all comes down to understanding your unique situation to set proper acquisition targets, to make sure that you're growing at the rate you want, but also being profitable enough. And then we can double -click further into that in the relationship between like profit and balance sheet and how that relates to growth.

over time and investing into inventory. when it's all said and done, in theory, you can have both, but where it breaks in our experience is that you have not enough profit per unit sold to reinvest into more units to maintain that growth rate if you grow too fast on the top first time customer side. So this is my favorite topic conversation. So happy we're chatting about it, but yeah.

Jon Blair (10:14.274)

That's why you're here, So yes, let's dive into this. We're gonna be chatting about this for basically the rest of the episode. So you put it very, very well, and I will honestly say that like.

probably the best and most concise in an understandable way that I've heard a growth marketer speak before on this show, which is why I want to have you come on. One way that I like to explain it to brand founders in kind of like non -finance terms is like, okay, let's think about repeat purchases as a subsidy, right? It's a subsidy of the margin because there's, let's just call it, generally speaking, there's little to no acquisition cost, right? So your contribution margin is really your

contribution margin sans any marketing spend, right? And so that is subsidizing your blended...

contribution margin for the whole business, right? So that subsidizes in many ways, that does subsidize in my opinion, how fast you can scale on acquiring less profitable, maybe even break even, or if you're really aggressive, unprofitable, first time orders, brand new customers, right? And so the speed at which you can have a healthy blended margin that produces profitability at the company level,

depends, the speed at which you can acquire unprofitable or very small profit per order on new customers is dependent on how fast you can push that repeat purchase subsidy back into the coffers, right, to acquire a new customer at a very small to no profit. And so that's why, that's why like a supplements brand that has a subscription where you buy every single month because you're buying a 30 day supply, they can scale a

Jon Blair (12:03.854)

they generally speaking, they can scale crazy fast at a really nice blended margin because that repeat purchase subsidy shows up every 30 days, right? Whereas like I was on the founding team of a econ brand called Guardian Bikes. We had repeat purchase, first order AOV was like about 300 and 12 month LTV was about 400, 24 month LTV was about 500. So there was LTV but

You don't buy a bike every 30 days for your kid, right? They're kids' bikes. You buy a bike and then maybe in another year or two years, you buy a bike, right?

that repeat purchase subsidy is coming in at a very slow rate, right, relative to acquiring new customers. So we actually had to be a lot more profitable on new customer orders in order to blend out to a margin that produced the bottom line that we want. So like, it really does become this balancing act, right? And again, relating back to the balance sheet, which Dylan just mentioned, that like,

How much capital do you have, how much capital cushion do you have to run at a lower profitability for a period of time? How much capital cushion do you have to purchase inventory again to replenish the coffers? You have to also balance P & L with the balance sheet.

Like what are some other things that are I would say like that you see that are common misconceptions about how this kind of like model of growth and profitability that we're talking about Dylan like what are some other common misconceptions that you usually have to like educate brand founders on?

Dylan Byers (13:43.16)

Yeah, I think one of the big things is for people who haven't looked at it like this in the past, oftentimes it's kind of going slowly before going too fast. Maybe there's a lack of confidence. Like you kind of want to wait to see the LTV play out because a lot of people may be even, especially if the balance sheet is healthy, you may be able to scale faster temporarily with less full funnel ROAS we would call it, which would lead to being

more new customer revenue as a percentage of total revenue. And if there's less contribution dollars from first time customer sales and there are return customer sales, naturally you're gonna be making less profit per unit sold on average. that's a kind of a, it can be a scary experience for someone who's historically operated at like a specific target. And I'm not saying throw profitability out of the door. All that matters is profitability.

But you can sometimes get even more profitability if you grow faster, especially if fixed costs are making up a high percentage of overall revenue. So one of the things we'll often kind of chat through is like, like we don't have to go all out right away. Like we can kind of do a month, measure the following month and kind of build a plan that's more manageable. Because especially you brought up like supplement brands or CPG in general, the benefit of that industry is that you often have

phenomenal lifetime value, but you often are also having less margin on first time customer acquisition because it's kind of been competed away faster. So some brands in CPG will acquire at a loss. And if you're doing that, that's even more scary when you're kind of betting on future profits. So it's often an exercise of risk management of like, how much are you willing to eat into contribution slash net margin this month for potential future gains?

Jon Blair (15:14.318)

for sure.

Jon Blair (15:26.488)

totally.

Dylan Byers (15:32.088)

Because again, especially if you're a bigger business, there's a lot of data, you can have more confidence in the historical data to repeat itself. But when you're scaling quickly, maybe going into different markets, this, that, the other thing, there's always a risk management discussion too, when betting on future revenues from return customers. So I'd say the risk management side of things in terms of how much you're willing to eat into now for future benefit is often one of the main conversations that we have. And then also being realistic about

how much you can actually impact lifetime value. So you brought up a super key point. I'm calling it velocity of LTV. So I would rather have, in some cases, 80 % of the max LTV realized in a 12 month basis in three months, even if I sacrifice the rest of the value that could happen between month three ish to month 12 and some hypothetical scenarios because

Jon Blair (16:04.63)

Yeah, yeah, for sure.

Jon Blair (16:24.728)

Sure. Yep.

Dylan Byers (16:27.478)

that has a direct relationship into how fast you can reinvest into scaling. So sometimes there's conversations in certain cases where growth rate matters a lot and we want to try and speed it up is, is there ways to artificially get people to come back faster via certain promotions and or offer structuring to try and speed up the kind of like the return on invested capital, if you will, into acquiring a customer. So that's a conversation we sometimes have.

Jon Blair (16:52.942)

Totally.

Dylan Byers (16:57.089)

Again, even then it can be difficult to speed that up and it kind of only works in certain industries in our experience but ultimately those are kind of the two main things is like a having confidence in the future profitability playing out and then also a conversation of okay like the example you gave where the the The the LTV is very stretched out into over multiple years at the end of the day in that product category is probably not much you can do to actually encourage people to come back faster, but maybe in a

Jon Blair (17:24.376)

for sure.

Dylan Byers (17:25.631)

in a CPG product, maybe it's skincare as an example, maybe there's a specific product that is sold or a bundle that is sold that maybe their acquisition efficiency is little bit slower, sorry, lower, but maybe the velocity of lifetime value is way faster. So hey, let's take a little bit less on the front end and then gain more value quicker to again, speed up this funnel. So there's multiple kind of different approaches, but we really, really have a lot of conversations like, hey, what can we sell sometimes?

Jon Blair (17:41.048)

Totally.

Dylan Byers (17:54.605)

to not only improve our ROAS on the front end, but speed up the velocity of the lifetime value.

Jon Blair (17:59.948)

Yeah, I love it, man. There's another thing that I keep thinking about as you're going through this, which is that when you have a higher velocity of lifetime value of repeat purchases, you...

you have the ability also to, generally speaking, I see on the finance side, like, because you guys have a really awesome, you know, profitability model, right? When you overlay that over the cash flow models that we build as CFOs, one of the major inputs for CPG brands and specifically D2C or ecom heavy CPG brands in their cash flow equation is inventory, right? And like, if you have this high velocity of repeat purchase,

and it ultimately yields and you're able to scale really really fast.

you can actually take a lower margin as a percentage of revenue and keep inventory turns. You can be much more efficient with your cash because you're turning through inventory, right? The faster you're turning through inventory, the more efficient your cash flow is. So there's this huge opportunity, which is one of the reasons why we're so excited to meet you guys. There's this huge opportunity for an agency like you guys to really be looking at the profit equation the way that you do and for us to partner with you

on the cash flow side of the financial projections because they can become a constraint and or an enabler to the other, right? So like for example, there may be a reason why we wanna go more aggressive on dropping the blended margin or as you guys call it, the full funnel ROAS, right? To go much more aggressive on first order acquisition if I've got the cash flow, right? To actually be able to sustain that for a season.

Jon Blair (19:46.42)

knowing that we're placing a bet on the return we're gonna get in terms of like LTV and repeat purchase. And so a lot of times, like one of the challenges that brands have is like when they're just running on really tight cash balances, they get really scared about letting marketing draw.

seemingly draw margins down, right? Because they're like, man, I'm operating on such tight working capital, know, such a tight working capital equation right now. But when a CFO is able to come in and do things like help them manage their inventory more efficiently, maybe bring the right lines of credit into place or help them negotiate terms with their vendors to open up the working capital equation a little bit, you can all of a sudden, that in and of itself being more efficient on working capital can finance.

getting more aggressive on the growth side. I think another thing for us to mention here is fixed costs, right? Like,

and really like what we call in the finance world operating leverage. When you're operating a business with high fixed costs, which generally speaking in the e -comm or the consumer goods world, it's because you're doing your own manufacturing and your own fulfillment. So operations is not outsourced and is not a variable cost, but instead you've made it a fixed cost. When you have high operating leverage, getting to break even means higher, basically contribution margin dollars, right? To get to break even.

But when you pass that break even point, if you have excess capacity, you can start dropping massive amounts of contribution dollars straight to the bottom line, right? But the way that you would scale from a...

Jon Blair (21:31.999)

margin requirement standpoint or profit per order is different if you're, it can be different if you have a high operating leverage versus low operating leverage. Another thing is margins. And this is what I want to talk about gross margin for a few here with you. Because if you've got a product that has,

that you can really turn inventory quickly, and I would even say that has a high velocity of LTV or repeat purchase rate, you can generally afford a lower margin, at the gross margin level, right? But if you've got something that's a one and done purchase, or there's lot of space in between repeat purchases, in my experience as a CFO, it is much easier to do so with a really high gross margin.

to aid growth and why is that? Because you don't have LTV or repeat purchases to subsidize the first order acquisition. So you need to be profitable, as profitable as possible on that first order, which means hopefully you have a higher AOV and a high gross margin to open up CAC so that you can grow and still be profitable. Do you agree with that? Do you have any thoughts around that?

Dylan Byers (22:47.086)

Yeah, 100%. I mean, I think that there are some businesses that oftentimes like, often hire AOV, one and done products, where doesn't, there's not like a natural repeat purchase in place. Maybe the product really has a lifetime warranty because it lasts a long time. For those products, you definitely need to have very high healthy margins because you have to basically realize all of the contribution margin for the most part on order one. So you need a lot of margin left out, left, left over.

the worst thing would be like a one -time purchase product, low AOV, low margins, and it's gonna be hard to work with. One of the other things too that is so underrated about high lifetime value products is also the risk in making your bets on inventory. So obviously you'll have your inventory forecast, but when you have high repeat purchaser rates, even if you miss on a first -time customer forecast, there's way more kind of safety built in.

Jon Blair (23:35.821)

Mm.

Dylan Byers (23:46.008)

to return customers being able to churn through that inventory over time. Because profit and healthy balance sheet are two completely different things. And at the end of the day, you have to make sure both are in a good spot. we've seen at times, we see brands get into unhealthy balance sheet situations where they're overstocked on certain items more frequently when they're not high lifetime value businesses. Because there was a plan in place to maybe execute

Jon Blair (24:07.523)

Mm -hmm.

Jon Blair (24:11.203)

Mmm.

Dylan Byers (24:14.582)

on a first time customer basis and maybe it was overly aggressive or maybe it was from like, for whatever reason, if that doesn't go to plan, you have less customers, you have less kind of bets on your side of the table to actually get that demand sold through. So LTV based businesses have a few different benefits. I LTV based businesses are basically just mean businesses with healthy return customer rates where you can kind of think about your risk a little bit differently too.

Jon Blair (24:21.667)

Yeah.

Jon Blair (24:37.538)

Yep.

Dylan Byers (24:41.837)

for how big of a bet you make in the inventory, which also impacts your ability to grow fast.

Jon Blair (24:51.148)

Yeah, that's, man, okay, so when I started out in my career in e -comm, it was at Guardian Bikes. I was on the founding team. It was the two original founders and myself.

And it's a premium kids bike brand sold direct to consumer on Shopify and Amazon seller central for a period, but we ended up pulling off and still to this day just DTC on our Shopify store. They are like $300 to $400 bucks. So high AOV premium product, right? We've created we created raving fans who love the brand and it thinks and there's lots of word of mouth, right? There's definitely

repeat purchase, but it's a lower velocity LTV product, right? And so we had to just really nail the economics on thinking about bill of materials cost, thinking about, you know, shipping outbound shipping optimization, because we needed to open up, we did have an AOV of like three to 350, right? So we had some room when you start talking about like, CAC right? And enough CAC to sustain diminishing returns, because diminishing

returns are gonna happen, right, on Meta and elsewhere. But if you like contrast that with a brand that's a one -time purchase or like low velocity LTB and say their AOV is 75 bucks, right, as opposed to 350, and their contribution margin or their gross margin ratio is like on the lower end.

You just can't grow profitably because there's not enough, there's just not enough room for CAC.

Jon Blair (26:34.206)

at scale, like, you know, scaled up ad spend levels. Like, I think a lot of brands don't realize that, that some of these are just like fundamental laws of like what CPMs cost at sale, at scale, and that the fact that you're going to see like diminishing returns. what advice can you offer if you've got a brand or someone who's thinking about starting a brand or they're thinking about like developing a new product line, what would be your,

like Dylan Byers, this is my all -star list of criteria as I'm designing a product to allow the highest likelihood of being able to provide economics that allow you to scale quickly and profitably.

Dylan Byers (27:22.254)

I think obviously like all general statements through our exceptions and we still see like some brands with unique setups that you may not think would succeed, but they managed to do it. At the bare minimum, I would say after all variable costs, so cost of goods, cost of delivery, payment gateway fees, returns, so on and so forth, having at least 60 % margins left over, but probably even higher than that. It depends on the industry, but like there are some, we see clients that have much higher than that, it is possible.

Jon Blair (27:43.48)

Totally agree.

Dylan Byers (27:51.757)

That's like a core baseline. is just relatively rare that at scale you can achieve much above a 2X new customer ROAS. It still happens and there are brands that can do it, but oftentimes for a lot of industries, 2X is kind of like a common level. And at the end of the day, you have 50 % martins after, you're basically just breaking even. So it can vary, but I'd kind of start there. I'd probably pick a category that has high lifetime value.

Jon Blair (28:02.616)

Totally.

Dylan Byers (28:21.056)

Again, just so stability in the business, being able to be more profitable, there's benefits on the inventory planning side as well. I think that that is also a core thing. So focusing on at least that margin and having high lifetime value. also do think though that like, it is harder than it was five years ago to just come up with a half decent product and spin up Facebook ads. Like there is way more competition now and having some unique

Jon Blair (28:45.048)

for sure.

Dylan Byers (28:50.573)

edge is normally recommended to excel. And when I say unique edge, doesn't have to be any special, but you probably have to have like an actually unique product. Like being like the 100,000th skin cream company with no special unique concoction or maybe it's a brand partnership or maybe you have like, I know, the best margins ever because you happen to own a manufacturing facility. I don't know. There are these edge cases where you're like,

Jon Blair (29:00.344)

Totally.

Jon Blair (29:17.368)

Totally.

Dylan Byers (29:20.296)

you know, you have like, you have a competitive advantage. But the competitive advantage of being like really, really, really good at Facebook ads, there is still value there, but the arbitrage isn't as high as it was, say, five years ago. So you need to have, you need to have more. So I would only start if I have high margins, high probability of being a high LTV product, because you don't really know until you launch, but obviously like something consumable or replenishable. And then why

Jon Blair (29:31.938)

Totally. I totally agree.

Dylan Byers (29:49.375)

the starting line, like what is the actual competitive advantage I have. Yeah, that's my go -to.

Jon Blair (29:53.656)

totally. No, that's a great list. So when I started Free to Grow CFO

Not quite three years ago. only Ecom brand I worked with and for was Guardian Bikes, right? And so we're kind of like, and we started back in 2016. So I feel like, I mean, like we were had a Magento site and like Shopify had just like started coming out and we moved to Shopify reluctantly. Like, is this going to be like legit or not? Right? And so, so much different world back then in Ecom, there was a lot of, I would say DTC darlings who got founded around that time

Dylan Byers (30:15.767)

Nice.

Jon Blair (30:29.342)

couple years before who reached nine figures in revenue like spending on Google like bottom of funnel PPC right which that debt just doesn't exist anymore or like just crushing SEO and no one else in your product category is doing that right and you get to a hundred million in revenue that doesn't exist anymore I mean maybe there's a couple like very like like narrow niches where that that opportunity is available but not really and so

You need to, I mean, have to, you gotta start a, you have to create a brand, right? And like, and I always say DTC as a channel should provide some sort of an edge. There should be a reason why you're trying to scale DTC. For Guardian Bikes, we actually tried to scale brick and mortar before DTC. And what we found out is we made the safest kids' bikes direct to your door. That's where we ended, right? But we started brick and mortar, because that's where most bikes are sold. We had a patent on

on a brake that prevents you from flipping over the handlebars. SureStop brakes. We couldn't tell that story.

of what SureStop brakes were in a Walmart bike aisle or a Target bike aisle or an independent bike shop. We tried, it didn't work, and we realized the only way to tell that story, direct to consumer, right? All the creative, our website content, know, email was a big piece and the content that was in our email. And so D2C gave us an edge. And Guardian Bikes will be, I'm sure will be a nine figure brand before people know it at some

point in the future and it but D2C as a channel gave us an edge right and so like I always say in addition to the product edge or them or maybe the branding edge that you're talking about why D2C like is it is is there something unique that you can do in the D2C channel that other other people can't do right because CPG another great channels physical retail right but it's a different game

Jon Blair (32:33.536)

and finding an edge in physical retail is not the same strategy as finding an edge on D2C. It's also not the same as finding an edge on Amazon, right? And so, like, find an edge in the channel, right, that makes sense strategically for some reason. And then the other thing is, I see a lot of brands make mistakes on telling their ad agency, fix my LTV.

Increase repeat purchase rate. I have come to form the conclusion that that's not possible. I mean, I think there are are tactics which I'll ask you about in a second that can enhance, right, repeat purchase velocity. But I've come to form a very hard and fast opinion that LTV is designed into the product during product development. Do you agree and what are your thoughts on that?

Dylan Byers (33:29.496)

think that statement is mostly true, that it is kind of just a fundamental makeup of what you sell. think email and SMS can have impact on it, albeit maybe less than people think. So email and SMS as a channel is where you go to try and increase your lifetime value. Paid ads, the secret of, let's say you're trying to increase LTV with Facebook.

Jon Blair (33:42.775)

Mm

Dylan Byers (33:56.703)

You have to think about those conversions that take place in Facebook as a completely, you have to measure it completely differently. And the reason why is because there is way more touch points involved with getting someone to cross the finish line and purchase again than just saying, Hey, this is top of funnel reaching that new people and convert. There's way more touch points involved. saying it's all because of the ads is very hard to do. So in our experience, when running retention campaigns, if you just look at what's reported in an ads manager.

Jon Blair (34:04.024)

for sure.

Dylan Byers (34:25.326)

and you're specifically only trying to target people who have bought from you before, the incremental value of those conversions are normally going to be, in reality, much less than what Facebook is telling you. And that's why you probably don't want to use 7 -day click or 7 -day click one day view there. You want to use one -day click attribution to try and get closer to that. But even then, oftentimes there's going to be overlap some amount with a Klaviyo or a Sendlay or an Attentive or a Postscript or whatever you're using. So...

Jon Blair (34:42.806)

Mm. Yeah.

Dylan Byers (34:52.503)

There's pros and cons, the third party tracking, no tracking solution is perfect, but we are a fan of in those situations looking at that to actually get an idea of what ROI is. Or at the very least trying to exclude engaged subscribers from some of the email platforms in general for most brands, especially eight figure brands trying to scale to nine or seven figure brands trying to scale to eight. In our opinion, ads are predominantly just a new customer acquisition focus and

Facebook is not perfect if you run exclusions, your ads still serve to return customers and you can see it in the data that there are return customer sales that happen just as a byproduct of top of funnel. I'm a fan of looking at the new customer outcome from ads and then just knowing that there's some side benefit to return customer sales as a byproduct of running ads. We basically very rarely, very, very, very rarely will run dedicated remark reading or retention campaigns.

Jon Blair (35:38.595)

Mm

Jon Blair (35:41.944)

Totally. Totally.

Dylan Byers (35:51.095)

The way Facebook works nowadays is you have a core campaign that is set up to try and scale new customer acquisition. That's the goal for most brands with the setups that get ran nowadays. And a byproduct of it is return customer sales happen. Maybe a little bit different in different channels, but for most D2C brands, Facebook is still the predominant spender. So just kind of focusing on that one. But that's kind of my two cents there. I don't think ads meaningfully impact LTV at all.

Jon Blair (36:18.008)

For sure, for sure. In our financial models, we have a simplified version of what you guys do on your revenue builds, and we attribute all ad spend to first time, or like first time customer revenue. And it's not perfect, but it's close enough, right? I mean, it is in all, for all intents and purposes, gonna be close enough.

Dylan Byers (36:31.989)

as well.

Jon Blair (36:41.134)

So there's a couple other things that I was thinking about as you were talking. One, I just wanted to echo. I think we have maybe a similar number of clients to you guys at any point in time. We have like 25, maybe approaching 30 or so. So we see a decent little, you know,

sliver of data in econ brands and like we've you know, there's one brand in particular that when I started with them, they're doing 1 .8 million in revenue and today in two years later, they're gonna do 50 million but the year I started with them, we went from 1 .8 to 35, which is like insane, right? And I'd learned a lot about diminishing returns and where things kind of settle in at scale from a full funnel ROAS or MER standpoint and I just wanted

to echo that 2 .0 new customer ROAS, I've seen the exact same thing in brand scaling. Again, scaling from two million a year in revenue to 35, which is a big jump. there is, what I've found is that brands who can grow that fast and do it profitably, one, they keep their fixed costs very under control, right? And they scale massively. Yeah, no, I mean like,

Dylan Byers (37:57.645)

That's super key and super underrated. You don't need a huge team in eComm

Jon Blair (38:02.286)

No, and at scale, this brand had like 4% to 5% of their revenue was fixed costs, right? And I think as they're even trying to grow and expand into retail, they're getting up to like 10, 11%, which still is fairly low when you look at that across other like verticals, right? But they keep their fixed overhead low and they scale massively on that fixed overhead.

Dylan Byers (38:14.753)

Yeah.

Jon Blair (38:25.902)

but their gross margins, like going back to what you're saying, your fully burdened gross margin, which has all variable costs before marketing spend, is like 70, 75%. And so at a two MER, right, they still have, we'll call it a 20 to 25 % contribution margin. And then you back out 5 % of sales, maybe 10 % of sales for fixed overhead, and bam, you've got yourself a nice little EBITDA, right, or bottom line. And...

That's the way that it's done. Now, are there outliers? Of course there's outliers. I don't want anyone to think that like there's not outliers, but I very clearly see the brands that can go, that can do something that go from one to 50 million in just one and a half to two years and produce 15 to 20 % EBITDA margins. That's how they're doing it. Their gross margin is 75 % and then their marketing spend is about 50 and their fixed overhead is 5 to 10.

and they have themselves a nice little EBITDA margin. And so you have to think about that on the front end when you're designing products, can I have a like can this product actually support a 50, sorry, 75 % fully burdened gross margin, right? Can I turn a profit at the company level at a 2.0?

ROAS like, like if you can pull those things off, there's nothing is guaranteed, but that that's the makeup that makes it a lot easier to have your cake and eat it to go really fast on customer acquisition and turn a nice profit. There's two other things I wanted to ask you about. One is like sort of like this, I would call it like this mythical, is this true or is this not true? And I'd love to just get your take on it. And it's that like, I've heard

I don't think people talk about it as much anymore. I do still hear some people talk about this, but using Facebook to build the conversion, you're trying to optimize for is converting email signups, right? And then trying to convert people specifically through email flows or campaigns.

Jon Blair (40:36.246)

What are your thoughts, like again, I call this myth because I've heard people talk about it and in theory it sounds like a great idea, but I've seen brands try it and fail miserably. Like, have you seen it work to just focus on using Facebook to drive email signups specifically and then use email to convert them profitably?

Dylan Byers (40:56.654)

Almost never works. I've seen it work like a sort of like two or three times. I say sort of because arguably was it was probably equal to or worse than baseline conversion optimized campaigns and not at the same scale. So were you to scale it? That's debatable because you compare one initiative or one campaign at 20k a day or one campaign at 500 bucks a day. You can't compare those two things, right? They're a little bit different.

Jon Blair (41:23.587)

Yeah.

Dylan Byers (41:25.901)

The main reason is that you're not optimizing for quality. And then as a byproduct of that, just because you're getting a certain cost per lead, it doesn't always equate to the same eventual outcome. In our experience, one client we worked with comes to mind and they were selling products that kind of ranged from 500 bucks to thousands of dollars. And in that specific scenario, the consideration period was very

Jon Blair (41:30.019)

Mm.

Dylan Byers (41:54.789)

So the way in which we measured performance was we understood that outside of specific kind of sale periods, the ROAS was borderline unviable. The contribution margin was very low. However, kind of quarterly -ish, there would be a promotion and there would be a huge spike in contribution margin and sales. And the reason why was because what we were basically doing was there was a large percentage of the customer base who were cost -conscious.

Jon Blair (41:55.342)

for sure.

Dylan Byers (42:22.358)

and we would use email and SMS as a function of converting that customer base. And what we were looking at was the cost per email sign up on the pop -up. And that's a metric we frequently measure and look at for a lot of clients. And essentially what that is, is it's saying, hey, I know that I'm running these conversion campaigns. This is my cost per purchase like this week or this month. But I also know that on average, X percent of the emails I get

Jon Blair (42:34.253)

Yeah.

Dylan Byers (42:50.221)

between now and that next promo are gonna convert. And I know that on average they're gonna be worth this much to me. So I can also kind of think to myself, I have extra expected value in the future as a byproduct of the spend I'm spending today. And again, there's more risk in that. The math is not always the same every time you run these sales. So I always tell people that because it's like, you wanna make sure you're also not like dipping into negative contribution margin necessarily sometimes in the lead up.

Jon Blair (43:03.074)

Yep.

Dylan Byers (43:15.521)

But that is how I would think about it. Not so much lead gen on Facebook. Lead gen is when you're actually saying, on Facebook or on Instagram, give me an email. But on a website traffic basis where you're still optimizing for conversions and you're using your pop -up, there is scenarios where it's not like the only thing you're betting on, but it's a side metric that eventually may have some payoff in the future.

Jon Blair (43:23.468)

Yeah.

Jon Blair (43:39.022)

That makes sense, that makes sense. think that's really, really great advice. So, last thing I want to ask before we land the plane here is...

What are some of the core dos and don'ts for email and SMS given that that's like kind of, you know, that's where you guys started and you guys are, I'd imagine, really good at that. Like when you get a new brand and starts working with you guys over at Aplo Group, what is the checklist that you're going down of dos and don'ts that you commonly have to address to optimize repeat purchase and retention?

once you guys take over that side of the marketing mix.

Dylan Byers (44:21.325)

Yeah, for sure. I'll do my best to answer this one. I would say that some of most common things we kind of see for more advanced businesses is like incredible intricacies in their automations to a point where like if you just made like people will chase trying to improve a very specific flow for a tiny subset of customers. Like maybe you identify that 1 % of your customer base buys this category and you want to build out a specific flow for that specific thing that ends up yielding a tiny amount. That's a lot of work. You're adding a lot of net new emails to the entire construction of the email accounts. And alternatively, you may be able to create just as much value by split testing a subject line in your second, third or fourth Welcome Series email. So oftentimes we see like kind of like very complicated accounts for the sake of complexity.

Jon Blair (44:54.006)

Mm -hmm. Yeah.

Jon Blair (45:12.206)

for sure.

Dylan Byers (45:18.85)

when there's simplicity actually could serve a superior outcome. I think that's like item number one. And then like I said, the other thing is especially brands that are often going from seven to eight figures and maybe even low eight figures to higher is naturally brands will frequently expand product lines and or even serve different types of customers. Like I'll use clothing and apparel as an example. Maybe you start off selling.

Jon Blair (45:19.224)

Yeah.

Dylan Byers (45:46.697)

women's clothing and then maybe you're transitioning to also selling menswear. You at some point have to think about, you have to treat these as almost two separate business units and build out a more customized experience for those types of people. And again, that's kind of counter to my previous point, but in this point, you're going after an entire new category, an entire new part of your business that you're gonna invest ad dollars into versus some small little, I don't know, maybe it's like women's socks that are red.

Jon Blair (46:05.144)

Sure.

Dylan Byers (46:12.929)

Like how many people buy those versus how many people like focus on the big things. Cause if you can make even a small improvement there, that may be a lot more in terms of actual dollar values generated than a large improvement to a super small subset of customers. So that's probably the biggest thing. Obviously like list health and engagement and making sure you're managing your list health is often overlooked. But in terms of like actionable kind of like funnel strategies, I would just always focus on like

Jon Blair (46:13.518)

for sure.

Dylan Byers (46:41.463)

When you're going through the list of things that can be worked on, like if this goes my way, what is the highest leverage thing I can spend time working on instead of trying to make something more complicated that doesn't have to be.

Jon Blair (46:52.738)

I think the leverage kind of filter is something that brands mess up a lot in just marketing in general, is getting really hung up on trying to take action in a spot that just likely doesn't have a lot of leverage when there's so much low hanging fruit, right? And I think that's true not just for retention, I mean, even for paid media and creative, mean like there's just, I just see a lot of, I think that's probably the hardest thing for brands is like there's so many things they could do. How do they determine what really has the highest leverage or potential leverage and what doesn't? And at the end of the day, that strategy in general, you can apply to all functions in your business is like we're always trying to tackle the next task or initiative or project that potentially has the highest leverage to get us closest to our goals. So I think that's like super super awesome advice Well, look, unfortunately for all the listeners where we've got to land the plane on this subject But before we go, I always like to end with a personal question So what's a little known fact that about Dylan Byers that people might find shocking or surprising?

Dylan Byers (48:15.63)

I'll answer a little bit differently. I'll circle it back to Aplo Group as a whole. So, Liam, Jacob, and I are actually all childhood best friends and we grew up swimming competitively together. So, used to, from when were little kids, show up at the pool like five in the morning and then swim a bunch of laps. So, we were all swimmers growing up. So, we've known each other for a very long time and it's really fun being able to work with your best friends every single day. So, that's one cool little fact that not a lot of people know about Aplo.

Jon Blair (48:26.06)

I love that.

Jon Blair (48:42.786)

Dude, I freaking love that. That is so awesome, man. That is so awesome. Well, listen, listen everyone. What we talked about here, unfortunately, is a view of marketing and growth and profitability that I truly believe is not being proliferated enough out in the marketplace. That's why I had Dylan here today. So Dylan, I really couldn't thank you enough for sitting down with me, chatting through this nerdy stuff, and dropping some knowledge for our audience, know, Free to Grow

Dylan Byers (48:46.775)

It is awesome. Yeah.

Jon Blair (49:12.96)

looks forward to working on more mutual clients with you guys now and into the near future. And before we shut it down here, where can people find more information on you and Aplo Group?

Dylan Byers (49:17.783)

Likewise.

Dylan Byers (49:26.743)

Best place is just to go to our website. So Aplogroup.com, that's where we have the most content and we'll generally have the most up -to -date information.

Jon Blair (49:35.756)

Love it, love it. Well, thanks everyone for joining today. Don't forget, if you want more helpful tips on scaling a profit -focused D2C brand, consider following me, Jon Blair, on LinkedIn. And if you're interested in learning more about how Free to Grow's D2C accountants and fractional CFOs can help your brand increase profit and cash flow as you scale, check us out at FreeToGrowCFO.com. And until next time, scale on.

The Silent DTC Brand Killer - Jacked Up Bookkeeping

Episode Summary

In this episode of The Free to Grow CFO Podcast, host Jon Blair sits down with Lio Pinchevski, founder and CEO of Finaloop, to dive deep into the challenges of managing inventory and bookkeeping for e-commerce brands. They discuss the importance of accurate and timely financial reporting, the difference between cash and accrual accounting, and the complexities of inventory management in the e-commerce world. With a unique background as both an accountant and an e-commerce founder, Lio shares insights on the complexities of managing finances for consumer brands and introduces the innovative solutions Finaloop offers. Tune in to gain valuable insights on optimizing your financial infrastructure for growth in the e-commerce space.

Episode Links

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

Lioran Pinchevski - https://www.linkedin.com/in/lioran-pinchevski-78807529/

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

Finaloop - https://www.finaloop.com/

Key Takeaways:

• Discover the financial blind spots DTC brands often face and the risks of using outdated accounting methods.

• Learn how automated accounting solutions can provide real-time financial data to improve decision-making.

• Understand why accurate inventory tracking and cost management are crucial for avoiding
  costly stockouts or overstocking.

• Gain clarity on the different roles of
  accountants and CFOs, and when to bring in
  specialized financial expertise.
  

Meet Lioran Pinchevski

Lioran Pinchevski is the Founder and CEO of Finaloop, the leading ecommerce accounting and inventory solution that combines software and expert services to deliver real-time financial data and insights for multi-channel DTC brands. And if you wonder how he ended up starting an accounting startup for DTC, it might be helpful to know that he is a tax lawyer and CPA who also founded his own DTC brand before—speaking of putting your hands together... A former lecturer at Tel Aviv University, Lioran, who acquired degrees in Accounting and Law from the universities of TLV and Michigan with top honors, left his position as Partner at PwC to start Finaloop. You can't make this shit up.

Transcript

~~~

00:00:00 - Introduction and Background of Lioran Pinchevski

00:03:03 - The Importance of Solid Bookkeeping

00:08:56 - Developing Financial IQ and Vertical Expertise

00:23:47 - Accrual Accounting for Measuring Margins

00:30:35 - Separating Tax Accounting from Financial and Managerial Accounting

00:32:26 - Accrual Accounting and Tax Books

00:41:32 - Challenges of Sales Reconciliation

00:25:22 - Navigating Inventory Accounting

00:38:06 - The Difference Between an Accountant and a CFO

00:57:29 - Final Thoughts

Jon Blair:

All right. Hey, hey, everyone. Welcome back to another episode of the Free to Grow CFO podcast, where we're diving deep into conversations about scaling a D2C brand with a profit-focused mindset. I'm your host, Jon Blair, founder of Free to Grow CFO. We're the go-to outsource finance and accounting firm for growing D2C brands. Today, I'm here with my friend, Lio Pinchevski, founder and CEO of Finaloop.. Lio, what's happening, man?

Lioran Pinchevski:

All good. Thank you for having me.

Jon Blair:

Thanks for joining me from the other side of the world. What time is it over there in Israel? It's 5.30. Okay, okay, well, I appreciate you taking the time to join and I'm looking forward to what we're gonna be chatting about today. Today's topic is not letting your bookkeeping constrain your growth, which is really, really important. I'd say for any business, maybe I'm biased because I was originally an accountant before a CFO, but in the e-commerce world and scaling a D2C brand, having solid books is just so incredibly important because if you don't know, if you don't have tight reporting, that's not just accurate, but also timely, you don't have the critical, critical data that you need to make decisions and grow your business and achieve your goals. And so couldn't think of a better person to chat with than you. And, you know, to get started before we really dive into this topic, I'd love if you could give the audience a bit of your background and the journey to, um, you know, founding and starting Finaloop.

Lioran Pinchevski:

Yes, of course. So again, thanks for having me today. So I'm Lio. I'm a lawyer and accountant in professions. Spent most of my career with PwC, the big four accounting firm. Half of my time in New York, half of my time in Tel Aviv, worked mainly on international tax M&A, just M&A and acquisitions between really, really large enterprises. And also started a direct-to-consumer brand in the fertility space as a side hustle due to some personal pains of my wife and myself conceiving for the second time. And this is how I got exposed to the e-commerce, the multi-channel, I'd say, e-commerce world. And as a founder, I felt that I'm quite blind with my business. It started very early. The business grew into high seven figures. And even though I was selling very nicely, I was still blind about my financials. And I could hire some external resource but never got the results that I was expecting. So I kind of built my own visibility through, you know, pulling data from different sources. And then I said, hey, you know, my Direct to c onsumer brand is a very nice side hustle. But here there's an opportunity to build something that is really, really, really big. because I thought that if I am struggling with understanding my financials, and I'm an accountant, and I have a tax background, I just assume that many other founders are suffering from the same problem. And in a space that is driven by performance marketing, and every penny matters, and the margins are very low, I thought that this is a huge opportunity to make a difference in the in the econ and consumer brand space.

Jon Blair:

Yeah, I love that. I love that one, and you know, so it's interesting because as a founder, the founder of Finaloop,, right, you have an interesting background as an accountant, but then also an e-commerce founder, right? And so you, in my mind, have this very interesting, unique intersection of understanding what it's like to be the person who started the brand, which oftentimes is not an accountant, right? Most of the brands we work with their founders don't have any sort of accounting background. Maybe a finance background, but certainly not accounting, right? And as related as those things are, they're different. And they take a different skill set and technical knowledge. And so that's what I found super fascinating when we first met you was the understanding that you have of not just who your user is likely going to be for FinalLoop, but an understanding of the technical side of accounting, which I think has positioned you guys to make a lot of progress really, really fast on FinalLoop. And so for those that don't know, can you just explain what FinalLoop is and at a high level how it works?

Lioran Pinchevski:

Yeah, sure. So, FinalLoop is a real-time accounting system for e-commerce and multi-channel consumer brands. It just means, basically, that we work only with consumer brands, whether you sell online or also offline retail wholesale. But on the other hand, the fact that we are a vertical product help us make all the data very visible and in real time. So if you think about it on a more high-level basis, we basically replace three main functions, I would say. We're going to replace the different integrations that you use to bring your data from the different services. Then we are replacing the manual reconciliation work as part of the bookkeeping process. Third, we're providing more visibility. The visibility side can be through having up your KPIs, giving you better inventory management process. I'd say accounting, finance, and a little bit on the operational side with respect to inventory and costs.

Jon Blair:

Yeah, and so, you know, I've been doing accounting for about 16 years and in different verticals. Started in manufacturing, got into e-commerce when I helped start a brand about 7 years ago. We always ran a really tight ship internally of getting the books closed in like five, six, seven days, but it's a lot of work, right? There's a lot to reconcile, especially if you are selling through, say, Shopify and Amazon, and maybe you now, in today's marketplace, you've got some other marketplaces like maybe fair or like walmart.com target.com right and maybe then you maybe have a little bit of like actual i'll call manual wholesale where you got actually like invoice customers when you take all of those channels um there's reconciliations included in making sure the bookkeeping is done properly on all those right and as you add one of each channel if you're doing everything manually becomes it becomes uh I'd say exponentially more complicated and time consuming to close the month in a timely manner. And I would say at Guardian Bikes, the brand that I helped start, we were probably from, in my opinion, we were probably in the top 10% in terms of being able to close the books that fast because we're free to grow sits in the marketplace. You know, we talked to dozens of brands. every single month, and most of them are closing their books, if they're even closed, right? And they're not behind by several months, which many of them are. Maybe they're closing them in 30 days. And so the problem with that is what? First off, if you're a couple months behind, you just don't even know what's really going on in your business. All you can really look to is maybe some reports in Shopify and Amazon, and then look and see how much cash is in the bank account. But that's no way to run a consumer brand. But even if you close your books in 30 days, by the time you look at those numbers, e-com changes so fast. It's basically, honestly, pointless, except for getting your tax return done. Tax accounting is not the same as operational financial accounting and managerial accounting. What you guys are trying to do, the problem you're trying to solve, is very, very important. Even such that Free to Grow CFO is one of the many firms that's partnered with you guys. We have many clients on Finaloop.. Jeff, my partner, and myself are also small angel investors. Because what you guys are doing is really, really important and is, I think, the future of bookkeeping. When you were building the product, and even I know you're still to this day talking to a lot of e-commerce founders, besides the books being closed slowly, like I just mentioned, what are the other really big challenges that you see time and time again that e-commerce brands keep facing in getting their books done accurately and on time?

Lioran Pinchevski:

Yeah, so I think in general, I think the main goal here is every brand should establish, I'd say, the financial infrastructure internally, right? The financial infrastructure that you would use for making business decisions, for financial planning, budgeting, cash flow, what have you, right? So the issue is how you build your financial infrastructure. Now, I think there are two sides, right? The founder side, the brand side, and then there's, I'd say, the vendor, the discipline of accounting. On the founder side, I think the key there is, let's say, to develop that financial IQ that many of the brand founders may not have because they're coming from different backgrounds. So you mentioned that a lot of brand founders would come with a finance background. But this, in my opinion, or if we're talking with the brands, would be the minority. The majority of the brand founders would come from more marketing brand, you know, content, storytelling, you know, performance marketing background. And I think for for these brand owners, the key is to develop this financial IQ. They don't need to be accountants. They don't need to be finance people, but they need to get into this level of understanding of finance that they own the financial IP internally. just like they do with marketing, right? So if you go to a marketing agency, you don't bring a marketing agency and say, hey, deal with my marketing. I'm not going to do anything. I don't want to hear about it. Just bring me these customers, right? Because then you cannot manage the process. Maybe you're missing on stuff. Maybe you're missing on income. Maybe you can do things better. Or if things go south, you don't even know how to end it. So my belief is that on the brand side, founders need to acquire this financial IQ, this financial IP, that they can then go and manage their vendors and manage their processes. I think it's, you know, there's a lot of content, there's a lot of education around marketing in the market, in the space. But I think that the consumer brand space need more education. I think people like you, like Jeff, like other people in the space, doing great job in educating the founders and educating the market, those who don't naturally have the financial background. And I think as long as we see progress there, I think people would be able to establish better foundations in terms of the financial infrastructure that they have. On the vendor side, I think the vendor, meaning the accountants and the bookkeepers and the CFOs in the e-commerce space, I see it as a growing trend because accounting in general, it's a very generic, I'd say, vertical agnostic profession. When I was a partner with PwC, I did tech companies and I did pharmaceutical companies and sometimes I had real estate. you know, kind of the professions that you see a lot of industries. So I think one problem in getting proper financials and proper books in e-commerce is the fact that most of the accountants, bookkeepers, CFOs in this space would be horizontal. and not vertical. So you guys are super vertical, but 99% of the market will be horizontal. And then for somebody that is not focused on consumer brands, the knowledge gap is just huge. It can be great accountants, super smart CFOs, but consumer is just a different animal. And even if you're a great accountant, if you don't have specific knowledge in the specific space, your books, the books that you're going to produce would just, you know, don't speak e-commerce and would be unusable. So I think the trend of more and more verticality into the space is a super important trend. Yeah. So this is this is one part of the story. The second part of the story, which is kind of more, you know, why we started Finaloop is Consumer brand versus any other industry is just a complex very complex business. Yeah you know you have marketing and you have logistics and you have you know, you have back office and you have finance and you have sourcing you have product and You usually have very small team with You know problems of you know, big companies. It's usually solved with a lot of people. Yeah so very complex business, usually high scale of information. So even for a vertical, super talented, super smart person to take all this data and being able to reconcile it efficiently on time to close the month, not 15 days after the end of the month or 30 days after the end of the month, but every single day, so you can run your business efficiently. This is something that technology has to support. Even take myself as an example, I'm now at the point that I understand e-commerce financials really, really well. If you let me manually manage books of an e-commerce business, a multi-channel e-commerce business, I would probably end up with tons of mistakes. Not because I'm not capable, just because the level of data, the level of complexity is beyond the capabilities of a human being in absence of technology or technology empowerment.

Jon Blair:

Yeah, those are all really, I mean, we could probably talk for the rest of this episode just about the several things you brought up there, but there's a couple of things I want to summarize and draw out for the audience. One, my buddy Ryan Rouse, I think you might know Ryan Rouse also, Lio, but my good friend Ryan Rouse, he always talks about like, look, founders. Whether it's, you mentioned marketing and you mentioned accounting and finance, but you need to know enough, you don't need to become an expert, but you need to know enough to know what good looks like, right? And make sound decisions, because if you just fully outsource everything, including the understanding of the various functions of your business, you'll be rolling the dice about whether it's going to go well or not go well. And so you need to know enough to know what good looks like and to be able to make sound decisions and delegate properly. And accounting and finance are not excluded from that truth. And then the other thing that you mentioned is the complexity of e-commerce and consumer goods together. There's complexity in e-commerce separately. There's complexity in consumer goods separately. And then when you bring them together, there's a lot of complexity, especially when you're talking about multi-channel e-commerce. And so that problem, that complexity is something that's ripe for technology to come in and really streamline things and make them more accurate. And I think you pointed out something that I actually wanna dive a little bit deeper on. And this is because we see this all the time at Free to Grow. It's that there's a lot of traditional CPA firms that are very horizontal, like you're talking about. Their claim is we serve all industries. And I, you know, I think that there are some industries that are not as complicated where you can be horizontal and still do a good job. But I've yet to find a, we serve all industries, CPA firm or bookkeeping firm or CFO firm for that matter, step into e-commerce, e-commerce consumer goods and do a really good job. The ones that are horizontal have like a partner or, you know, a division. that is very vertically focused. But what we see is the bookkeeping is just wrong and oftentimes actually it ends up being super late. And I think the conclusion I've drawn is the reason it's late is because they get stuck. and they kind of put it to the back burner and kind of try to figure out the easy stuff with the rest of their clients and come back to their e-com consumer goods clients and go, and I see this a lot in inventory, where I'll see the same inventory number on the balance sheet for like three months and then it'll all of a sudden change. And it's because it took them three months to figure out how to try to tie into ending inventory, right? So I was going to ask you if you see the same thing. I don't even need to ask you that because you already mentioned you do see the same thing. I mentioned why I think it why why there's such poor quality bookkeeping for these horizontal firms. But do you have any other thoughts on like why the bookkeeping is tends to be slower and inaccurate when there's just a very horizontal firm?

Lioran Pinchevski:

Yeah, I mean, I think it comes down to, you know, knowledge, expertise and tools, right? If you serve cross industries, even if you're a big firm and you have kind of vertical e-commerce partner, this is not the focus of the firm, right? It's not where all the resources go to. So you guys, for example, right, you live and breathe e-commerce. You know, 99% of your customers are, you know, from largely from this space. So you wake up in the morning and say, OK, you know, I'm an e-commerce finance guy, right? If you are not an e-commerce finance guy, the chances that you will be able to grasp all the nuances that e-commerce and multi-channel e-commerce brands encounter in the day-to-day, just impossible. So I can tell you that I've never seen a horizontal CPA, bookkeeper, accountant, or also a horizontal software, right? The reason we started Finaloop, we basically said, okay, I'm an e-commerce guy, I understand that if we take this vertical, we can do just great, build a huge company and make a lot of money. The reason I said that is that I understood that verticality here is an extremely important factor. So to your question, I don't see how a horizontal professional would get books of an e-commerce brand right. And if I was an e-commerce founder, I would never go and get services from any firm that is not 100% focused on consumer brands.

Jon Blair:

Yeah, you know, so it's funny and this is, I'm smiling because we have a small team, right? We're a very tight knit team of all CFOs and accountants that used to work in-house at brands, right? And it's because I was a brand founder. I was on the founding team of a brand and so I'm very adamant about bringing people in. who have worked in a brand before because they've dealt with those complexities and those challenges and we have a we have a meeting we run our company on EOS for those of you who are familiar with EOS because I'm also an EOS coach on the side and there's these meetings we have our service delivery team has a meeting every week where we have a list of issues that we've either discerned ourselves or that clients have brought to us, and we're solving them in highest priority. And we always make this joke about the fact that like, Is there, and there probably is another firm out there doing this, but there's probably very few. Is there another firm that's getting this nerdy about e-commerce? Because everyone loves it. Everyone on our team, I can honestly say that everyone on our team loves trying to figure out e-commerce. And every time, there are times when we're like, man, This is really challenging. Like, should we go do something easier? And it's like, no, this is what we were made for, right? And this is what we were made for. And that's what keeps it fun. And to be quite honest, you know what I always remember, Lio? And I'm sure this is near and dear to your heart, being a founder yourself of a brand. I remember what it was like when we started Guardian Bikes and we didn't know anything about e-commerce and we were just figuring it out. And what keeps us going is like, no, no, no, there are more brand founders out there who are lost. who need us to stay in the game, right? And that's the truth, and when I hear a founder, there's actually nothing better, truly, than a founder who says, hey, my life was like this before free to grow, and it's now like this, and it's so much better, and I'm sure you hear that about Finaloop.. They're actually, that is the whole reason we do this, right? That's what gets us out of bed every day, is like we can't let down those e-com founders out there who have it, who are struggling and haven't found out about us yet and haven't seen how we can help them. So what I wanna talk about next is the difference between cash and accrual accounting, because this is like front and center to consumer, well, I mean, I don't wanna say it's just a challenge for consumer goods, but because these are inventory-based businesses, right? And like you mentioned, margins, you have to know your margins because of the impact of variable marketing spend, right? You're always spending dollars on Meta, Google, and you need to know how that's impacting your margins, because that's ultimately driving either more contribution margin dollars or less, right? And if you don't understand that concept and can't report on contribution margin dollars, and also understand what your balance sheet looks like and where your cash is going. Is it stuck in inventory? Are you paying your vendors too fast? Is it locked up in receivables? If you don't have those things down, running a consumer brand multi-channel is going to be so, so hard. So, in simple terms, from your perspective, what's the difference between cash and accrual, and why is it so important for an e-commerce consumer brand?

Lioran Pinchevski:

In very simple words, accrual accounting would be accounting for transactions when they actually happen or materialize rather than when the cash actually moves. So a very simple example, I consume the services of a marketing agency. I haven't paid them yet, but I know that contractually I have to pay them. This becomes a liability and it becomes an expense today and not in the future when I actually move the money, right? So this is the base concept of Equal. I do see inventory a bit differently because I still think that you can, and I'll tell you in a second what my opinion about that is, but you can essentially run a cash basis a set of books for an e-commerce brand, but still on the inventory side, not be cash basis, meaning inventory for me is not cash accrual, but rather purchase-based versus sales-based. Whenever you purchase inventory, you recognize an expense. or only when you sell the inventory. Now, I have a very strong opinion. In my opinion, regardless of what we're reporting for tax purposes, right, which is, you know, it's, you know, sometimes for tax CPAs, it's just easier to, you know, to report on cash basis and not on accrual basis. For some of them, it just doesn't matter. But for accounting purposes and measuring your business, you have to be on accrual. And my recommendation is for every brand, which is already six figures and obviously up, to just manage everything on accrual, which means books on accrual and inventory on sales-based basically recognize the cogs when the inventory is sold and not when you purchase the inventory. those who still want to manage the books on cash basis, the inventory still needs to be sales-based. So I don't see how an e-commerce brand can operate based on cash inventory accounting, which by the way, is also not the right thing to report from a tax perspective, but this is a different topic. The concept is, you know, it's very... Obvious, right? You can buy an inventory, a tranche of inventory today for $100,000. You keep it in the warehouse. You didn't sell anything. It's not an expense. Whenever you sell the inventory, then you have the COGS as an expense. And any other measurement would just destroy the way you track your gross margin, the way you track your contribution margin, the way you measure your business. Absolutely. So for me, managing the financials on a cruel basis, sales base for inventory, and there is no reason to do anything else because the expertise is there, you have people to help you with that, and the technology is there. So I don't see any excuse to keep things on cash whatsoever.

Jon Blair:

Absolutely. So I have the same strong opinion as you and the way that I explain it to founders who are just starting to try to kind of wrap their mind around the financial IQ that you mentioned earlier is one kind of outcome of proper accrual accounting is you get revenue and expenses matched right in the same month. And what I often see, and I know you guys see this all the time, I can tell immediately when a brand has issues with accrual accounting, because I see their margins as a percentage of revenue swing up and down like the stock market every single month. And the ones who have it very clean, yeah, there's a little bit of variability up or down a couple points, right? But it's very stable. And so here's the problem. On cash basis, you see these huge swings where maybe one month your gross margin is actually negative. because you recognize all the inventory you purchase in that month. Here's a perfect example. Right before the holidays, most of these consumer brands have a huge sales spike before the holidays. But what else happens a couple months back from that? Purchasing inventory. So you see a negative gross margin a couple months before the holidays, because they're gearing up on inventory and they're expensing their purchases to COGS. But then in Q4 when they sell it, their gross margin's like 99%, because there is no cost of goods sold that's recognized. But here's the problem. How do you then decide whether the impact of shipping costs and fulfillment costs and marketing spend in those months, how that's accurately impacting your margin? You can't, right? Because you've got your cost of goods sold two months back in a different month. And so when accrual accounting is being done right, you see very stable margins. But here's the real important thing. When you're on cash basis and your margins are swinging up and down, can you really tell if they're getting better or worse? No, you can't. So as a founder, you may not even know until it's too late that your actual cost of goods sold has been rising, right? You don't know.

Lioran Pinchevski:

You're blind, right? You're not managing the entire books. You can't measure anything. My nightmare as an e-comm founder was this state or this period of time when you're running your additional marketing dollar in a loss, right? So I was obsessed about the numbers because I couldn't cope with this idea of I'm running now this campaign and I'm like raising the bids and I'm getting crazy. Okay, I see the sales, but actually I'm like losing on this marginal sale. And if, as you said, if you if you do cash basis, you have no clue. You don't know. Just don't know. It's too, you know, there's too much fluctuation to be able to say this is what I sold and this is what it actually cost me.

Jon Blair:

Yeah. And so if you have timely books, like you're using a tool like final loop, right. And you're getting your books done every single day and it's on an accrual basis. When you see your cogs go up right in pretty close to real time, you can act on that and, and, and dig, dive down deep and figure out what's driving this. Can I do anything to get this, these cogs back down? Right. You can't do that if you're on cash basis. And I've tell, I think one struggle that I have, and by the way, I have no personal vendetta against CPAs. They serve a very important function within the whole ecosystem, but for the size brands we work with, 5 million to 75 million, 5 million to 100 million, but there's only a few up there. CPAs in large part are doing taxes. Taxes are a very important function within your business, but it's night and day compared to financial and managerial accounting, which you actually use to run your business. You can't let a CPA tell you, hey, I want to do your taxes on a cash basis. and assume that's the way you do your internal accounting for decision-making purpose. You have to separate those things, and that's actually something that is surprising to a lot of the brands that we work with. Because in the early days, the CPA did everything, right? Did the bookkeeping and the taxes, but you have to start separating those once you hit a certain size, right? At least seven figures, maybe even before. we start saying, no, no, no, look, if your tax accountant wants to do stuff cash basis, you have to consult with them on whether that's compliant and that's best for your tax situation. But we can still do the books accrual and it can be converted to cash very easily for them to do the tax return. That's no problem. So like, I just want everyone to know, listening to this, you don't have to go one or the other. You can have tax books and internal books and they do not have to be the same. Exactly. Um, so one other thing that will, like, I want to talk a little bit about the common challenges. Cause final loop is like really big in, in helping overcome this challenge. Um, the challenges on accrual accounting with revenue recognition and revenue reconciliation from your standpoint, what makes that hard in the e-commerce world and how does final loop help, you know, overcome that challenge?

Lioran Pinchevski:

Yeah. So I think the main challenge that we are dealing with every day on the reconciliation side is the ability to, I mean, regardless of, like, regardless of accrual, I'm going to touch that in a second. You have the base challenge of you have sales on Shopify. Amazon is connected to Shopify and Fair is connected to Shopify. And then Shopify itself, in the sales reporting, are including many things that are not really sales. So you get a very noisy picture of your sales in the different platforms. Absolutely. Then you can have sales in the different platforms. Let's say you sold something on Shopify to a wholesale or retail customer and you didn't collect the money, right? You're going to still have a sale in Shopify, but it was never got collected and you're not sure that it's a real sale. So there's a lot of work in getting to all these channels. Make sure that you don't have duplications. between the channels and that every single sale or sale component is indeed income, not duplication of income, not just like something that a Shopify returns app just hacked in order to push the returns back. So there's a lot of cleansing of the information that you have in order to get to the base income. And one of the ways that we are doing that, because I don't think it's possible to do it only with the Shopify API or the Amazon API. So the way we do it is by way of reconciliation. So we basically bring all the data from Shopify, clean the data, bring all the data from Amazon, clean the data, and then we reconcile it against the payment gateway. And then we reconcile the payment gateway against the bank. We call it three way reconciliation. And it's never perfect, it's close to perfect because if you think about it, it's not the people that build Stripe are not the same people that build Shopify and the people that build Klarna are not the same people that build Stripe. So every service, you talk a different language and you don't always have a footprint to say, okay, this is a sale of Shopify and here is the payment on Klarna or on Stripe that basically clears the specific sale. So there's a lot of data modeling and reconciliation done on that part. This is just like the base mission of getting into, this is what you sold. Yeah. After you do that, you want to ask, okay, I'm on a cruel basis, so I also want to know what I actually sold, meaning I already delivered or fulfilled the order and it's on the way to the customer, rather than I just got paid and maybe it's a pre-sale, right? So then there's another layer, which is the fulfillment layer of saying, I had this sale on Shopify or I had had the sale on Amazon, but this sale is fulfilled or not yet fulfilled. If it's fulfilled, it's income. If it's not yet fulfilled, then it's deferred revenue. It's not actually income. And only when the order is fulfilled, then you recognize the income. So you have two layers of complexities, defining what a sale is and reconcile it against the payment. And then the second layer is to say, okay, now, whether the sale meets the cruel definition of the sale of an income item.

Jon Blair:

Yeah, you said, okay, so the first, what you ran through the sales reconciliation, you said that super well, which I'm not surprised because that is one of the areas of final loop is like the most robust in terms of like dealing with e-commerce specific challenges. But that three-way reconciliation, like that's something that seven years ago at Guardian we were doing manually, right? Like pulling in sales and we, you're passing it through a clearing account and then pulling out of that clearing account all the payments we could actually identify And then confirming those then went from that clearing account to the bank account and they actually existed. And that was. I mean, that's a lot of work, right? It's a ton of work. And I will say, contrary to what a lot of people believe, like the WebGility and A2X, those different connectors, they don't do it correctly. In fact, we used those for a while, and we would manually check what those connectors were doing, and it was wrong. And we actually went back to doing it manually. seven years ago because why because those connectors were wrong as well and so that Unfortunately, I'm in the believe me. I we wished back then the connectors works. Believe me We were like hoping that they would work and they didn't and and I you know I haven't used them in a long time or I haven't used them in years But we just kind of we're kind of scarred from that and so we never we never went back to it but I will say we still have this challenge and We have this challenge that comes up kind of two-fold every single month. One, hey, how come my financials don't match the Shopify report? We get that all the time. And then how come my sales don't match TripleWhale? And TripleWhale has the same exact problem as Shopify in terms of what, and it's actually the TripleWhale one is, is really challenging because it'll report ROAS or MER using what some of those revenue pieces of revenue from Shopify that are not actually revenue. Like one that drives me crazy, sales tax gets included in there and sales tax is not revenue. It's a pass-through liability that you put on your balance sheet because you owe it to somebody else. And so to say that that should be included in your return on ad spend is just misleading. And so I've actually had brands say, hey, my ROAS is 3.5. And I'm like, no, it's 2.9. And they're like, what do you mean it's 2.9? And it was because they actually just started collecting sales tax. So they went from like zero sales tax to like 350 grand in sales tax because they just started using like a service like Avalara. And all of a sudden their ROAS, I'm like, guys, it's 2.9 but they're making decisions on 3.5, right? And those two different numbers have a much different margin impact. And so I'm just, I'm using this example to show everyone that like, What Lio's talking about is super important. It's not like just, oh, debits and credits and like, you know, like I don't want to get into accounting. You don't need to understand the debits of credits, right? Finaloop does that and there's accountants who can help, you know, like kind of help you understand it, right? But what you need to understand is if these things are not going into the right place, they're not going into the right buckets, you will make decisions that you think are gonna lead to one end and actually lead to another. That's the important thing to take away from all of this. And in today's world in e-commerce and consumer goods, there's just not a lot of margin for error, right? You need to make good decisions and when you make a bad decision, you need to know quickly that it was a bad decision so that you can change, right? And so I just wanna draw that out for everyone to understand. This is not just a couple nerdy accountants talking, although maybe we are, but this is actually really important stuff to your brand. And so understanding these basics is just gonna set you apart as an elite brand from just an average brand. So there's something I wanna dive into from here, Lio, that this really makes you think about inventory accounting. Because this is like, that's the other hairy beast in all of this, right? Inventory accounting. Where do you see brands struggle the most with getting inventory and

cost of goods sold accounting right?

Lioran Pinchevski:

So I would split it into, I would say the greater purpose, right? The greater purpose in managing inventory is to avoid stockouts, right? Which is a bad thing for growth, a bad thing for your momentum, right? So this is one side of things. The other side is not to overstock. Because this is going to kill your cash flow, right? So the brands that we see struggling on Finaloop and based on a lot of discussions with the brands along the way, are brands that are getting into this problematic cycle of, I bought too much inventory. I now have it in my warehouse. I didn't sell it quick enough and I need to finance it, so I'll take a loan. But the loan has 25% annual interest effectively, right? So now we are in this death cycle of like a really, really bad cycle where you can't sell your inventory, but you need to serve the debt. So you're saying, okay, this line of inventory is not great. I'm going to tweak and I bring this new product and you buy inventory again and you finance it again. And then you go, just, you know, your cash flow is just getting super negative and that's basically it. So you want to avoid stockouts on the one hand, but you don't want to overstock on the other hand. In order to get that right, I think you need to have basically two components. One is to get really accurate about the financial side of inventory, which is our main focus. Basically understand what your lended costs are, which is not trivial, right? Because there's the price that you purchase the unit. But you have shipping and you have customs and you have many different indirect costs that in certain cases can be more expensive than the price of the product itself. So you need a great mechanism to measure your landed cost and then do it in high scale, right? Because it's really a lot of POs, a lot of indirect costs and The way you measure it based on FIFO or based on weighted average, this is something that is very, it's not trivial to do it when you have great scale in your company. And the second part is many e-commerce brands would have raw materials, but then they're going to assemble the raw materials or they're going to create finished products from the raw materials. So there's, you know, the disciplines of recipes and assemblies and being able to transform raw material into finished goods and understand what are the financial implications from this transformation in order to understand what a single unit actually costs you. So this is on the finance side, and it's a great challenge. We recently launched a great tool to help founders with that. It's called Inventory IQ. So basically a full cycle from PO into COGS calculation based on FIFO. that helps you with that. The only thing that you need to do is just to inject the PO and then everything goes automatically from there. I think that the second layer is just like, you know, the unit tracking to really understand what you have in the different warehouses, which sounds trivial, right? You have single warehouse or two warehouses and you have FBA. But as a matter of fact, it's not very trivial. So many brands struggling to understand how many units they have today in the different warehouses. And you need better processes or great processes to actually being able to efficiently understand how many products you have in each warehouse. And the combination between the finance side of inventory and the physical side of inventory, how many units you have should give you a great infrastructure to really understand whether you are getting into stockouts and you need to raise a P.O. or whether you are just going to overstock by understanding what you have and kind of project what you need for the next project that you have on your marketing calendar and the promotions that you're expecting. This is the third component, which is demand planning. You have all these numbers. Now you can plan your demand and make sure that you are not run out of inventory or buy too much.

Jon Blair:
Yeah, there, there's a common theme here, right, that I keep hearing you say, and I'm smiling

because we deal with this so much. It sounds trivial, but it's not right. And that's like, whether we're talking about the revenue reconciliation and we're talking about landed cost tracking. It all sounds trivial and then you get into it in the context of an e-commerce consumer brand and it's very much not trivial. But here's the real hard thing, is even if you get a process down, let's say you get a process down on the inventory side to track landed cost for ocean shipments. But then all of a sudden you get low on stock and you start air shipping stuff, right? And so you have lots that are coming out air shipped and then other lots that are coming out ocean freighted and we've dealt with this a lot. Or you have to like move to another supplier for a period of time because you reach the capacity, there's an issue at one of your suppliers. So you start buying the same SKU from a different supplier, different supplier costs, maybe it's a different country so it's a different duty rate and different shipping costs. So it's all fun and easier, easier, more trivial when you're buying from the same place and shipping container rates are staying the same and you're always shipping via ocean. But that's, that's like a dreamland. That's not the e-commerce world that we live in. you've got those things changing all the time, right? And you're having to make really fast decisions. And so really the complexity comes into play of like, do you have the ability to track your landed cost as all those variables continue to change over time? And mind you, if you're growing, You're scaling, you're also just busy. You're busier with more marketing stuff. You're busier with more hiring. You're busy with all kinds of other stuff. And so having the right tool is super, super important on the inventory side of the house. Because as Lio mentioned, it's actually not just, there's the financial side of tracking inventory and that's incredibly important. It drives accurate accounting. But just tracking your inventory from a quantity perspective so you can do things like demand planning, it's also an operational thing that can really, really screw things up while you're scaling. So unfortunately, I see a lot of brands who are scaling into seven figures who say, I'll figure out the inventory stuff later. But when you get to later, it's a lot more painful and it's actually more dangerous for your brand's financial health because there's more money at stake. And so this is a really, really important one to make sure that you're focusing on as a founder, that you have the right systems in place to be able to handle inventory from a financial and an operational perspective.

Lioran Pinchevski:

And going back is always more complex more expensive than doing it today, right? You have this false notion of I'm going to focus on something else today and I'm going to deal with it later. But the later cost a lot of money because rewriting the past is just so much more expensive than setting up the processes today.

Jon Blair:

Absolutely. And here's the thing, I like to differentiate pre-product market fit from post-product market fit and scaling. If you're pre-product market fit, leave some of that stuff till later. You're just trying to get people to buy your product and buy it at a price that actually is economically viable. But once you've got product market fit and you're starting to scale, you should start with these processes immediately, because the longer that you wait, the more painful it's gonna be. And that goes for actually even just more generally, all your general ledger accounting, get the right system and people in place early on. And here's the beauty, look, seven years ago, when I was part of the founding team at Guardian Bikes, I was on the team full time, right? And I'd say seven, eight years ago, it was a lot more common to find a full-time accounting and finance team in a D2C brand. Fast forward to 2024, there are, besides free to grow, there's so many other, there's so many choices. You got software like Finaloop,, you have tons of firms, and even freelancer, you know, D2C focused, fractional CFOs and fractional bookkeepers and accountants. You do not need a full-time team anymore in the modern e-commerce brand. We work with brands that are, that are 60, 70 million a year in revenue, and there's not a single full-time person in their finance team, right? And we serve them well as fractional CFOs. Many of them are on final loop, right? And we help oversee the bookkeeping and final loop. So don't think that today in 2024, Having the right accounting system and personnel is cheaper than it's ever been. It's more accessible than it's ever been. So there's actually honestly very little excuse. There's no excuse to not do it early on, like there maybe was seven or eight years ago.

Lioran Pinchevski:

For sure. The barrier is so low now that you just need to get it done. Absolutely. I fully agree. Five years ago, the only way to do it is to bring somebody, because of the horizontal state of the market five years ago, you needed to bring somebody on board coach them, make them understand e-commerce before they become productive. Now people can just go to a firm like free to grow and get the value from day one as a fraction of help. There's no reason not to do it because it would just get more expensive down the road.

Jon Blair:

Absolutely. Last question before we land the plane. This is important to the discussion we've been having here. The difference between an accountant and a CFO. They're not the same thing. You may have people who were accountants who become CFOs. I started as one. Became a controller, became a head of finance, became a CFO. They're not the same thing though. And it's important that brands understand that distinction. I love how you guys on your site and in talking to brands kind of separate out financial operations from bookkeeping, from CFO, right? And I think it's a very logical kind of like segmentation. From your vantage point, what's the difference between an accountant and CFO and why is it important for brands to understand that?

Lioran Pinchevski:

Yeah. So, even accountants are split into two groups, which would be bookkeepers, right? The main responsibility of a bookkeeper is maintain the books as a foundation to the tax work, right? So, this would be the second type of accountant. You're going to have the bookkeeper. You're going to have the tax CPA. Both of them, in my logic, are accountants or under the term accountants. And then you're going to have the CFO, right? So under accountants, you're gonna have the tax CPA responsible for tax planning, tax filing. Then you're gonna have the bookkeepers. The bookkeepers are responsible to get your books 100% accurate with strong financial infrastructure to facilitate the work, of course, the tax filing, but mainly throughout the year, facilitate the work of the CFO. Now, I would say the main difference between the work of a CFO and the work of a bookkeeper, bookkeeper is looking at the past and the responsibility is to bring the past into a digital form of books, which is the financial foundation. You know, what we are trying to do is not to look at the past, but to look at the present, right? But we stop at the present. CFO for me is anything that comes after the present into the future, right? So it's planning, it's budgeting, it's making decisions that would impact the next quarter and the quarter afterwards. This is one side. And second function of a CFO, in my opinion, is to set the right processes, to set the right operational processes. Because what I see is that many people would go to the CFO and say, hey, you know, I need this budget and I need, you know, this inventory forecast and demand planning and helping with this decision. But then when you dig in, you just understand that You need two things. You need one, the financial infrastructure, so you need the books, right? You need the financials, but you also need strong financial and operational processes. in order to make all this plan and budget and cash flow practical. Otherwise, it's going to stay a tab in Excel and nothing actionable. So for me, the CFO is future-looking, dealing with planning, budgeting, decision-making, and processes. The responsibility of the accountant, other than filing the taxes, is to build this financial infrastructure so the CFO can do the work in a professional level without dealing with you know, fire drills and like, you know, the data is not strong and then drilling down into the books. And then people end up paying so much for CFO consulting, but have their CFO just dig and do the manual entries in the books. This is kind of how I see the space of, let's say, vendors in accounting.

Jon Blair:

Totally agree. We see way too many CFOs who are mostly accountants or mostly doing bookkeeping responsibilities. Really, accountants, like Lio said, are, from a financial accounting or a bookkeeping standpoint, they're creating sound records and reports that can be used by the CFO and management to build the future that you desire to build in your business, to achieve your goals, to understand risks and potential rewards of decisions, and to really look at making strategic financial decisions. And they're both very important to a scaling econ brand. It's not one without the other, right? It's a partnership but knowing where each should be focused is very important and not calling an accountant a CFO or a CFO and accountant is very, very important because they have distinct roles. It's kind of like finance and accounting. They're not the same thing. Are they related? Absolutely, they're related. They're not the same thing. Very similar with the concept of accountant and a CFO. So unfortunately, see, I don't get to have a lot of accountants on the show with me, so I actually really enjoy this, but we do have to land the plane, and I always like to end with a personal question. So here it is. What's a little known fact about you, Lio, that most people would find surprising?

Lioran Pinchevski:

Yeah, so that's probably the toughest question for me, so I'll just, you know, something from today. So we're now recruiting a lot of people, and one of the candidates I came to the office and say, where is Lioran's office? And the people here told them he doesn't have an office. So where does he sit? He doesn't have even a space. So it looked really, really weird. And the fun thing about this topic is that for years, I feel that my role is just to you know, be there and move between different places. But for almost six years, I don't have a permanent place to sit, which is right in big accounting firm, right? This is the thing, right?

Jon Blair:

Yeah, corner office, you got the view, right?

Lioran Pinchevski:

Yeah. But the level of your seating, right, whether you have space or an office or a corner office. Yeah. And, you know, people find it really funny.

Jon Blair:

No, I'm actually, to be honest with you, I think that's actually one of the best ways to lead is to not put separation between yourself and everyone. And you guys are a fast-growing venture-backed startup. There's a lot happening all the time, right? And so it's hard to not be kind of like, you know, kind of moving across the business depending on what's going on. And that now, that does explain why every time we get on a video call with you, that your background is never the same. That's definitely, that definitely makes sense now. Well, before we end, where can people find more information about you and about Finaloop?

Lioran Pinchevski:

So the easiest way would be on our website, finalloop.com. We would be very happy to help with everything accounting, have great collaboration with you guys, with your firm on many customers. So whether people just need to, you know, the bookkeeping alone or the bookkeeping with extra layers of proficiency that this is, you know, this is the place to find us and work with great partners like you.

Jon Blair:

Absolutely. And look, if anyone ever has any questions about final loop, you can always reach out to free to grow where we get the question all the time. Is final loop like the real deal? And I say, yeah, it's so much the real deal that we've invested in it and we're partners with them. So it absolutely is. And we have a growing number of clients that are on final loop and and so it's been a pleasure i mean i think we've been partnered for not quite a about a year or so and um it's been cool to see the platform get better more and more brands using it everyone get more comfortable and be able to leverage it more so i highly recommend it um i definitely check it out and actually final loop makes it very easy to try the platform out. I think you can get a 14-day trial. Incredibly, incredibly easy. There's very little risk to just giving it a shot, so definitely consider that. And look, as always, if you want more helpful tips on how to scale a D2C brand, consider following me, Jon Blair, on LinkedIn. And if you're interested in learning more about how Free to Grow's D2C accountants and fractional CFOs can help your brand increase profit and cash flow as you scale, check us out at freetogrowcfo.com. Lio, this was an awesome conversation. I might have to have you back one day just so I can have another accounting nerd to chat about all the things I can't talk with everyone else about. But thanks for joining and look forward to chatting soon. Thanks, buddy. Until next time, as we always say around here, scale on.

Scaling Advice From an Amazon and Marketplace Pro

Episode Summary

In this week’s episode of the Free to Grow CFO Podcast, host Jon Blair dives deep into conversations with Tana Cofer, founder of RosieRai an Amazon growth agency. They discuss the challenges and strategies for scaling a D2C brand on marketplaces like Amazon, Walmart, and Target. Tana shares her expertise on launching products on Amazon, including the importance of strategic product selection, review generation, and understanding the costs associated with marketplace expansion. They also touch on the sequencing of channel expansion and the nuances of cross-channel marketing spend attribution. Overall, this episode is packed with actionable advice for brand founders looking to optimize their operations and achieve sustainable growth.

• Customer Data Utilization: Learn how to
  harness customer data to improve retention
  rates and drive more repeat purchases.

• Challenges of Scaling: Explore the operational and financial challenges DTC brands encounter during the scaling phase and how to overcome them.

Key Highlights:

• Balancing Growth and Profitability: Tana outlines the dangers of pursuing growth at the expense of profitability and shares tactics for achieving both.

• Leveraging Financial Data: Understanding your numbers is key. Tana breaks down how to use financial data to inform strategic decisions.

Episode Links

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

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

Tana Cofer - https://www.linkedin.com/in/tanacofer/

RosieRai - https://rosierai.com/

Glitter Faced - https://www.glitter-faced.com/

Meet Tana Cofer

Tana Cofer is the founder and CEO of RosieRai, an e-commerce growth agency focused on helping small to medium size businesses launch and scale profitably on any online Marketplace. With a passion for driving online business success, Tana leads her team in creating innovative strategies that deliver remarkable results for their clients. She is also a wife and mother of 3 children and enjoys spending her weekends in her jeep out in the Utah mountains. 

Learn more about RosieRai and request a free Amazon Account audit here: https://rosierai.com/contact

Transcript

~~~

00:00:00 - Introduction

00:05:30 - Tana's background and experience in e-commerce

00:10:45 - Importance of sequencing in strategy

00:18:05 - Strategies for getting initial reviews on Amazon

00:25:28 - Discussion on different agency pricing models

00:31:25 - The significance of sequencing in strategy

00:36:47 - Common mistakes and misconceptions when launching on a marketplace

00:41:43 - Considerations for upfront costs when launching on Amazon

00:44:02 - Cross-channel marketing spend attribution and challenges

00:50:47 - Final Thoughts

Jon Blair:

Hey everyone, welcome back to another episode of the free to grow CFO podcast where. As you know, we dive deep into conversations about scaling a DTC brand, but it's all about doing it with a profit focused mindset. I'm your host, Jon Blair, founder of Free to Grow CFO. We're the go-to outsource finance and accounting firm for eight and nine figure DTC brands. And today I'm super stoked to have my friend Tana Cofer on, founder of RosieRai an Amazon growth agency. But that's not all. She's an ex-pattern director and has even launched her own brand, which if you listen to our show, you know how giddy I get about actual brand founders coming on the show because when you've got a service provider who has been a founder, there's just a contextual understanding of what it's like to be in your shoes. So I always love to talk to service providers who are also brand founders. So Tana, thanks so much for joining. I'm excited to chat today.

Tana Cofer:

Of course. Yeah, same. I'm excited to be here.

Jon Blair:

So the reason why I had Tana on is because in today's D2C world, there's just so much chatter about how hard it is to scale a D2C brand only. And when I say D2C only, like Shopify or your .com site only. Back in the day when I was scaling Guardian Bikes, what, that was like eight, nine years ago, there were a lot of kind of like D2C only darlings that were kind of like the first to market. They hit nine figures in revenue without having to expand to another channel. that's really hard to do these days. It's not impossible, but I'd say it's the exception and not the rule. So because of that, more and more brands are looking to marketplaces to expand into different channels. Obviously Amazon as a kind of the easiest kind of lowest hanging fruit marketplace to expand into and kind of the most like DTC, but there's, I see lots of brands expanding into Walmart, Target marketplaces. There's even some other interesting up and coming ones. And it's all because it's like there are channels that are easier to bolt on to achieve profitability than expanding into retail. So like today we're gonna talk about marketplace growth strategy. Tana has got a bunch of awesome experience that's gonna be super, super next level advice for everyone listening. So Tana, before we get into chatting about marketplace growth strategy, I'd love for you to just run the audience through a little bit of your background.

Tana Cofer:

Absolutely. Yeah. So hi, I'm Tana. My background is mostly in the world of e-commerce, you know, graduated and went straight into digital marketing, and I worked for a small brand. helping that brand grow online through email marketing, social, new product launches. And then one of my roles actually at that job was to kick off Amazon sellers. I worked for an MLM and most MLMs don't really want to be on Amazon.

Jon Blair:

For sure.

Tana Cofer:

That was part of my role, was actually kicking off sellers. And so then I realized, you know, it was one of those things where I'd go to my director and I'm like, why are we doing this? Because it's another channel that people can learn about the brand. And they're like, well, we just don't do that. And so I realized, okay, I think there's an opportunity here. And I found this really small agency called iServe at the time, who we all know now as Pattern. And they, they were looking for an advertising person to just kind of learn and figure out how to, how to advertise on Amazon and eBay. This is back in 2018 and it was fairly new. And I was like, okay, I want to learn. I think it'd be cool. And so they hired me and rose to the director, managed the team and, uh, was there for five years. And there I helped brands launch on Amazon, Walmart, Target, eBay. and figure out how to do a full marketplace strategy that included their Shopify to make sure we weren't, you know, directing customers away from their DTC. That's one of the biggest concerns we hear from brands is they want to add a channel. They don't want to just move people away from one to the other. Um, and yeah, that's what I did for five years. Then I left end of 2022, uh, really just cause I had three kids at the time and it was really hard to do, you know, the agency life, which we all know is not nine to five. Um, and, And then come home and be with my kids and go to the wrestling tournaments and the dance recitals and it was getting really difficult. So I decided, you know what, I'm going to step back. I'm going to freelance and do my own thing and be with my kids more. And that freelance turned into the agency that is Rosie Ray today, which is great. It was not the intention, but it was just a lot of brands wanted to work with me and I couldn't work with all of them. So I found a way to try and work with all of them. So yeah. And so now I'm here today.

Jon Blair:

I love that. We have such a similar story because, so I was, I helped launch Guardian Bikes, a DTC brand back in 2016. We started dabbling in Amazon in like 2017, 2018. So the same time, like I consider that to be the heyday, right? Just like really trying to just figure it out and did that for about five years. And then in 2022 left and started freelancing. Cause I too have three kids that are now five, three, and two. And, When I started Free-to-Grow CFO, I basically just wanted to freelance provide a service on the finance side that I did in the brand for so many years. And it just started catching on like wildfire. And I was having so much fun coming alongside founders and helping them make sense of things that were kind of like a foreign language to them. And I was like, you know what, there's a business here. And that's how we turned Free-to-Grow into a CFO agency, so to speak. Very similar paths and I love it. Going back to those early days of Amazon, it was an interesting time to get thrust into that channel and just try to figure out what was it like just in, like I said, what I think is the heyday, the early days of Amazon. What was it like just getting thrown into that and trying to figure it out?

Tana Cofer:

Yeah. When I went over to what was called ICER, they were like, we're not, we're not an agency. We're like, we're helping brands grow. We buy, you know, Pattern buys the product and then like resells it basically on the platforms. And so they're like, we're not an agency. And so I came in thinking like, I wasn't even sure how to like view this company. And they didn't really know how to like position themselves either as a company. They're like, we're just helping other sellers. And so at first it was more like just trying to figure out what our goal is at iServe slash pattern. Like what is our goal? And then once we kind of identified that, okay, we'll suck it up. We are an agency slash retailer. That's what we are. That's okay. Now, how are we going to grow these brands? It was a lot of, there weren't YouTube videos. Like no one really knew how to do it. So it was definitely like, um, like, and I had done Google and social, so it was like, Hey, well, could I use this strategy from Google and create some ad campaigns with, would that work? And then, you know, we'd have, I'd have times where I would spend the entire budget that I had in a month and like two days because I didn't structure it quickly. And like, you know, you kind of go through all those issues and there were times where, I don't know if you remember some of these times where Amazon, like the budget caps just wouldn't work one day.

Jon Blair:

I know. It was so crazy. We checked the numbers in the morning and we're like, what happened last night?

Tana Cofer:

Yep. And then you look at your sales and you're like, well, I mean, my sales were up, so that's great, but it wasn't crazy high. Then you'd call Amazon to get your money back. There were a lot of those incidents that it was nice because other brands were feeling them too. Other agencies were feeling them as well. I knew it wasn't just me. That's what was really nice was even though I had a manager at Pattern, he didn't know any more than I did how to grow brands on Amazon. It was just like a, here's the budget that we were approved, figure it out. I thrive in that environment. I thrive when I'm given the right tools or the tools available, and they're just like, go. Go, make mistakes, figure it out. So that's what we did.

Jon Blair:

You're bringing back so many memories. I won't get into them because then we'll never get to the other things we need to chat about, but I definitely just remember one story I'll share. I remember this whole debate with the first Amazon freelancer we used to do our ad buying of non-brand terms and branded. If there was actually opportunity to expand into non brand and we spend a lot of money trying to figure that out and it just didn't end up panning out for us. And I'm not saying that there's not a strategy there, but it was like some very valuable learnings about like there's a right and a wrong way to try to figure out how to expand outside of like. branded key terms or or keywords that like make sense like for us like kids bike like versus going for you know kids bike helmet and seeing if we can sell them a bike and so A lot of learnings on the right and wrong way to do that stuff. I want to start with the basics because a lot of the brand founders that we work with, they don't necessarily understand what a marketplace is. Some of them may, but from your vantage point, what is a marketplace and how is it different from just a pure D2C Shopify store?

Tana Cofer:

Yeah. So I would say a D2C shop, there is an intent to learn about your brand and buy your product when consumers are there. So I would say it's more of an intent to discover and learn about you as a brand. And on Amazon, It is not that way. Amazon is a very high, I'm here to buy, buy the best price item and they get it as fast as possible. So what the consumers are looking for is different. For sure. When you look at like the time they spend on the Shopify versus Amazon, they may spend more time on Amazon, but it's not because they're necessarily getting to know the brand and like their catalog. Although we try and move customers to the specific Amazon brand store so they can do that. But it's mostly trying to figure out what are all the different types. of what such and such product, self-tanners, like what are all the different top self-tanners? You know, what are their key learnings? Like that's the best place to go to find all of them. And so that's why I would say marketplaces allow consumers to find a wide variety of different brands within a category they're looking at. And from there, either they're going to buy on the marketplace or they will discover brands and that will then take them to your Shopify and your Instagram and your TikTok to learn more about you and become brand loyal to you.

Jon Blair:

Yeah, it's interesting. So like, we tried all those strategies at Guardian. When I say all those, I mean like, you know, what's the strategy for just acquiring customers like on the Amazon platform? Then what's the strategy, like the crafty strategy to get someone to come to the site, or come to the site and buy from there instead, or come to the site after their initial purchase, right? And so we tried things like, I'm just going, riffing off the top of my memory, we tried things like putting certain cards You know, in the bike boxes that would drive them to go register for something on the site and they can get something free or a discount on the site. And that was to get them to buy accessories and buy their next bike on the site. So we did we did things like that. some of them worked, some of them didn't. We tried a lot of different things like in the box like that. And then some other things you mentioned like the price sensitivity, right? Like when you're on your site, you're basically, or when you have a consumer on your site, you're like, you're like monopolize their attention at that point in time, right? And they're not looking necessarily they, they, they, I mean, we know that people go to Amazon and price shop against D2C sites, but in that moment, they're just looking at your site, whereas Amazon is recommending other products like it. There's other people who are bidding on those same keywords that they found you through. And so let's talk a little bit about like, I guess product catalog or merchandising strategy, including pricing on Amazon. For example, eventually, it took us years to figure this out, but at Guardian, we eventually were like, hey, we shouldn't have the exact same products on Amazon as we do on our site, and we should be very intentional about what the price points are and why we're offering that particular product on Amazon versus our site. What advice or thoughts do you have about that kind of a strategy?

Tana Cofer:

Yeah, it's a great question. Um, I have a lot of thoughts, but I would say overall, I would say don't, um, wait, wait, you're likely you launched your Shopify first. Let's say 95% of brands launched their Shopify first. I would say when you decide to go to Amazon, don't just think I'll just download and re upload all of the same products there because then you will have consumers who will move from your Shopify over to Amazon purely for ease of getting it to them within 24 hours, assuming you do FBA. For sure. And then when they do that, you're increasing the likelihood that they're going to compare you to other brands. You're literally putting yourself like right next to them on the shelf as opposed to your Shopify and your Instagram where you can control it. So I would say be really strategic in what items that you believe are your gateway to your brand. Like those top items that really get people to say, wow, you're You know vitamin C is the best vitamin C on the market. I now want to shop all of your products So every brand usually has you know, one to ten of those items that they would do our gateway That is what you want to make sure you launch on Amazon then the next thing is I would say you launch items that go on that go with those, that are adjacent to a vitamin C and a vitamin D, and a multivitamin, like things that can be paired together. Or you could do virtual bundles, things like that, cross-targeting. So that's how I would kind of view that strategy. I wouldn't just think, well we're a brand that sells vitamins, so I want to put all 100 of our vitamins on Amazon so people can shop the whole collection. That's what I wouldn't do. I think it's a waste of a lot of money at first. You can slowly launch more on Amazon as you learn and grow, but I would definitely be strategic with the purpose of Amazon, and that is to discover new brands that are in the right price range for a consumer, and from there, they will then check out your Shopify, Instagram, whatever. Or you could even have an insert that goes in and says, have you seen our other products? And it'll encourage them without saying so, because you can't tell them to go to your site, but it encourages them to try and learn more about you.

Jon Blair:

I love it, I love it. Yeah, so again, we were just figuring it out just like you at Guardian in the early days, and so we eventually landed on, I believe Guardian actually now is not on Amazon anymore, but that's mostly because they just really figured out how to nail DTC growth, and they ended up pulling their products off of there. But for a while, what we did, we had two product lines. We were that we sold the safest kids bikes direct to your door and we had a flagship product line, which was more expensive as the premium one. And then we had an entry point product line. We used to just duplicate the product catalog on both Shopify and Amazon. And then we got wise and we're like, nah, that doesn't make any sense for a number of reasons. And we could almost, we felt like we could prove cannibalization a bit through the data as we were kind of like doing incrementality testing. And so we actually switched to let's only put our entry price point bikes on Amazon. So first off, it was in a price band where it fit in with the price spectrum of competing brands, whereas our flagship bike just stuck out as being way too expensive for Amazon. It was a little more expensive, but it was much closer to the competition. And like if you bought a 16 inch entry level bike, which is, which at that time was our smallest bike. If you love the brand, there's a good chance you're gonna come back and buy a 20 inch bike when your kid gets big enough for it. But if you can't buy that bike on Amazon, and we have won you over as a brand, then you're gonna come back to our site and buy the 20 inch bike. So again, we're no geniuses. It took us many years of not doing that to get to that point. But that's like one example of the gateway product strategy that you're talking about that did turn out to be fruitful for us. Another thing we did eventually was like, when we got overstocked on an inventory position on a given SKU and we needed to move it, we would oftentimes take an allotment of inventory, move it to FBA and try to churn through that inventory on Amazon to kind of re-level the inventory position on that SKU.

Tana Cofer:

Yeah, that's a great strategy as well. You also want to remember when you launch anything on a marketplace, you get a little bit of a bump from Amazon as a new product, like a little bit. But in reality, you want to have reviews and ratings and things on the listing. So I would just say whenever you launch a product for anyone who's like, who will be listening, like the 30, 60, 90 day window is so key to your success on the platform. So make sure you have a really strong presence at the very beginning. and you have a plan to get those reviews, get those initial sales, even if you kind of force them to happen or you make no money because you spend a lot of ads on the beginning, that's what's going to set you up for success and Amazon will serve you more. So that's kind of my other advice. Whenever you're launching any product on the marketplace, when you launch so many, you can't do each individual one intentionally. You're just throwing them up there and then you end up advertising or picking your top five anyway. So just start with those top five. Give those the chance to shine. Then as you add more, you'll be able to move funds and give them each attention.

Jon Blair:

That's actually really good advice and that actually brings up something that I didn't think of in preparing for this conversation which is, A lot of when I think about roadblocks to and your barriers to entry with a lot of the brand founders I talked to one of the things that makes brand founders freeze is like Damn, I'm really nervous about getting that first tranche of reviews, right? Of going from zero to something respectable and it can feel insurmountable at times. If you don't know the right tactics and strategies to use, what advice do you have to like, like you're saying you're, you're, you're actually launching for the first time as a brand, your first allotment of products on Amazon and you have no reviews. Walk me through like some of the high points of your playbook of like what a brand should do to get over that reviews roadblock.

Tana Cofer:

Yeah, perfect question. So I'll share exactly what I did for Glitter Faced when we launched. Our goal was to get 100 reviews as soon as possible and we were able to do it in less than two months and here's how we did that. So we had five variations of our glitter, so five different colors. So I launched them all as five different listings at the very beginning and I rolled each one in what's called the Amazon Vine program. Oh yeah, we did that. you pay to have Amazon give a few consumers who are in this buying program free product in exchange for a review. They don't have to write a review, but 80% of them will write a review. And I don't know all the details for that. So you can do up to 30 for each one. I think we We did the 30, I believe, for all of them individually. And then after we gathered those reviews, we then merged the listings together. So then consumers won all the reviews that went out together. And then consumers could then shop blue, green, gold, shimmer, and pink all in one listing. So at that point, we probably had maybe 70 reviews that all came in from Vine. However, they're all Vine customer reviews, which means if you go to the review section, it says Vine customer review. It says so so, you know as a shopper. Okay, these people received free product right there of you It's still a great review people can still be honest But you also know they probably were a little kinder because they got it for free So they'll give me a five star instead of before so the next thing that we do is We do like what we call search find buy and basically you ask people who are already loyal to the brand And you you said like an email out and say hey You know, go check us out on Amazon, things like that. Remember to search our top keywords, and you tell them to search edible glitter for drinks, things like that, so that you have them search the keywords you want to rank on, and they'll buy on Amazon, because they're already loyal to you, they'll support you, and they'll write a review, and that helps you get the review and get the rank increases. The last thing I would say to do is leverage your brand and your presence on Instagram, whatever, to provide Like promo codes, discounts, things like that, if they prove they wrote a review on the platform. Amazon will ding you if you get too many reviews within the same zip code or in a certain period of time. because they know, okay, you probably paid for those reviews, right? And that's not what you're doing. Essentially, you just are asking your current loyal customers, hey, we're live on Amazon, check us out, here's a promo code for you to get 25% off if you buy on Amazon. And those people are more likely to write a review, because they're already loyal to you. So that's what I would say at the beginning, is use the Vine program, and use your current loyal customers to encourage them to check you out on Amazon, And a lot of brands don't like to do that because they're like, well, I don't want them to know we're there. And it's just like, it's 2024. They know you're going to launch there. Get over it. Just get over it. But don't put all your products there. Just put a select few, at least in the beginning. So you're just asking them, like loyal brands, to help you out. Go see. Go buy there. Walk through the experience. You're going to have some kinks. Maybe they get the wrong color. And you want the people who are first buying to be loyal to you So they don't give you a negative review because they got the wrong product. They would actually email you right? That's what happened to us the beginning Some people got product that was like did not work like it was melted or things like that They didn't write a review because they knew us or were loyal to us. So they emailed us I'm like, hey just so you know this happened. We then can reimburse them figure it all out without them just being all negative and so then we had to figure out that situation. So there's a lot of kinks you want to work out in the beginning with people who are a little more understanding.

Jon Blair:

So I just got to say, if you're listening to this episode and you're thinking about launching on Amazon and you're worried about getting your first hundred reviews, Rewind this episode and take copious notes on what Tana just walked you through. Cause I'm, I'm telling you from personal experience, it took us years to figure that out at Guardian. So like what she just laid out for you is going to save you years of time. And I can validate what she just went through is exactly what we figured out at Guardian bikes, but we figured out the hard way on our own, just making mistakes. So, um, that is, that is fantastic advice. And as I'm sure, you know, from where you sit in the marketplace, like It's a common concern of DTC brand founders who wanna move to Amazon, but they're like, I don't know how to overcome this roadblock. But that's another reason why you should consider, when you're moving to Amazon, find an expert like Tana or her agency or the like, because look, it's gonna save you a lot of money and a lot of time. It's really, really important. I know very few brands, and I'm talking big brands that do 50, 60 million in revenue, they're not doing their Amazon ad buying in-house. It's more common for me to see them doing their paid social and maybe their Google PPC in-house, but Amazon is largely being outsourced to freelancers and agencies who are just experts in doing that over and over and over again. So I highly recommend it. So I kinda want, oh go ahead.

Tana Cofer:

I was gonna add a quick plug-in to my agency. We have three different models that we actually do. One is an hourly. You tell me what you can afford and I'll tell you how many hours I can give you based on that and what I would do if I were you. I love that. I do that because I specifically help brands that are like sub 100 million all online. And I even do ones who are just launching on Amazon, like fairly fresh brands, just like I was earlier this year. For sure. And I want to do it in a budget that makes sense for you. You just make it less of my time. But hey, you're going to get it. We're going to do it right, right? For sure. So I put on that one model. The one that's more popular is my monthly retainer model based on percentage of your sales, yada, yada. And then my last one is I actually do a commission-only model. where if I'm helping you grow, I will also receive the benefit of that, but there's no monthly retainer. So I have these three unique, well, the middle one is less unique, but other unique options for brands to really help them launch and launch correctly and not be too worried about the upfront budget that it is. Cause a lot of agencies charge percentage of ad spend or like a very large, like 10, 15 K flat fee. And you won't get that with me.

Jon Blair:

Yeah, I mean it's, I'm seeing more and more agencies who are starting to go away from the percentage of ad spend model and it's just, you know, even percentage of revenue like as a commission is much different than percentage of ad spend, right? I agree. It truly is, that's more of an aligned metric in terms of incentive with the brand, right? Like increased ad spend is not always a good thing. No. Sometimes it is, sometimes it is not. I'm seeing that actually more and more brands are unwilling to work with a percentage of ad spend model. That's good. I'm not saying that if someone out there runs an agency and they do it that way, that it's wrong. There are good agencies who have that model, but I am seeing more and more pop up that don't do that. and I'm seeing brands, especially the, I'd say the brands that are under 10 million in revenue, the six and seven figure brands, like the percentage of ad spend model oftentimes just doesn't fit with their cost structure. It yields a fee that just like, they might as well actually hire someone in-house to just work on their brand 40 hours a week. So anyways, I think that's really smart what you're doing, especially with the six and seven figure brands. So I want to, there's this interesting thing that I'm seeing happen out in the marketplace. Like our CFO agency, like we work primarily with, we work with seven, eight, and nine figure brands. We have a big concentration in eight and we have some nine figure brands that we work with. But what I'm seeing is that like, D2C brand founders generally tend to know a decent amount about scaling on Amazon because it's a very common marketplace for brands to expand into after like getting some traction on D2C. But Walmart, Target, I'm even seeing like some Nordstrom and there's some other marketplaces like they're really starting to emerge more and more. And I'm seeing more and more brands consider moving on to them. Like what's your take on the opportunity in these other marketplaces and maybe what are some of the other ones, are there any other ones that I didn't mention that you think people should take note of?

Tana Cofer:

Yeah, there are a lot of marketplaces that are now really focusing on the growth of their online, which I think is great. I would say the additional ones that I just don't want to go unnoticed are probably Wayfair, Bed Bath and Beyond as well, and Ulta. I say these three because they are partnering with a lot of the ad tech that's out there, like the Criteos and the PackViews, to allow for agencies and for even brands to be able to advertise on those marketplaces. I think that when a brand is willing, or when a marketplace is willing to invest in making their marketplace so good that other people would want to advertise on it, I think that that is something to look for and to make sure that we're all just aware of. And with my experience with those platforms, they're still fairly new. They're not, none of them are as sophisticated as Amazon, even though I wouldn't really call Amazon super sophisticated. But they're not as sophisticated as them, but they are a lot of those smaller brands like wafer and a wafer Especially I would say is really surpassing Walmart and targets offerings right now and I think that's just having to do with their focus and And that also could just be my experience, because I work with a lot of home decor brands that we want to move to Wayfair, and that makes more sense than other platforms. But there are other ones that I wanted to make sure we talked through. However, I would just say if a brand is wanting to launch, start with Amazon first. It's the most opportunity. I would actually then say after that, do Amazon Canada and maybe even UK. There still is a lot more sophistication there, more capabilities, more opportunities, and it's a lot easier to move into those because all you have to figure out is labeling and your inventory movement because you're already on Amazon US. All you have to do is figure out that step within them and it's fairly, depending on your product, it's fairly easy. Some products, their current label, you're able to advertise. on Canada immediately when you launch the US. So I would just say, look at that first. And then I would then look at the other marketplaces, probably starting with Walmart, Target, Wayfair, probably the ones that I would recommend you start with, depending on what makes sense for your brand. All of those, Wayfair and Target, you need to be approved But you can just apply online. And Walmart, you can just do. Walmart Marketplace, you can just upload online. Right now, anyone can sell on Walmart Marketplace. So that's what's also fairly nice about launching on Walmart. You don't need the additional approval.

Jon Blair:

You know, the advice that you just gave about the sequencing is really important because the more and more that I am involved in helping brands scale, the more that I realize that strategy, good strategy, successful strategy, is so much about sequencing. Not necessarily what you do, but when you do it. And doing things in the wrong order is oftentimes, especially when you talk about channel expansion, expanding into channels in the wrong order can really cause super big problems and so I'm like really glad that you went through kind of what you see as a best practice for sequencing because that's, I think sequencing from a strategy perspective, I think brands, I think just people are good about talking about like what they think they should do and there should be far more conversation about like what's the order that makes sense? Because getting the order wrong can really screw things up as you scale in a number of areas in your business.

Tana Cofer:

Yeah, and I think a lot of people, they think, okay, I'll just get my products up on Walmart or somewhere, and then I'm just going to run a lot of ads and tell a lot of people and our brand and send emails to everyone who currently buys and say, we're on Walmart. And that is not a great strategy in my opinion, because Walmart and Target One thing to think about is those are marketplaces that are online and in-store. Because of that, the product type and category you are in is extremely important at the beginning of your setup. If your cell phone accessory was accidentally put into just like a I don't know, just electronics and not actually cell phones. All of your keywords, your SEO, all of that is focused around your relevancy in electronics. And so your ads will all serve differently. This is different than Amazon. It will serve differently than if you're sitting in the category of cell phone accessories. I had a brand that I worked with when I was in the baby section. You know, nose pickers, nasal aspirators, things like that. We tried to advertise for like three months on Walmart and we were really struggling. And I was like, what is going on? On the call with the rep, they said, Oh, did you know that your product is in the nail clipper? Like the baby nail clipper section. And I was like, no, but, but I was like, no, but why does that matter? This is like two years ago. I'm like, why does that matter? And they're like, well, when consumers are searching on Walmart, you have to remember they're also searching like for in store too. So like if they're searching nail aspirators, that algorithm is going to serve them things that are best in the nail aspirator aisle and category. And if you're not in that category, then the Walmart algorithm doesn't know to serve you. So I'm just saying, when you initially set it up, on every marketplace, but especially ones that have a brick and mortar, you have to get your organic strategy and that initial upload right before you even put any ad dollars in. And that's one thing that I really focus on when I launch brands is we have a full SEO strategy, organic, even an influencer strategy before we even run ads. Because I think those things and content is so important and it's key for conversion. So it doesn't make sense to just like, okay, I'll just spend 10K this month trying to drive traffic there. And it's like, well, you have to actually have a good listing with everything you need and be set up correctly in order to do that.

Jon Blair:

See, that's actually one of those things, just like the sequencing thing that I just mentioned, that a brand could figure that out on their own, but how long will it take and what would be the cost of figuring that out? And that's one of the advantages of working with service providers that are very narrowly focused on whatever it is that you're trying to do, whether it's a marketplace growth professional like yourself or like it free to grow. We just work with Econ Brands. That's all we do all day long. And so, you know, actually, you know, this is actually a little like insider story like at the beginning of us scaling free to grow. I used to think that our value prop was like you get you get what you need from a CFO But at a part-time price, right? Without having to take on the overhead of a full-time CFO. But what we actually started finding is that we provide more value than a lot of full-time CFOs who are not e-com experts. Because all we do is e-com. So even though we're only working on your business part-time, We've seen all of these issues and made the mistakes for you, right? Collectively across our team of e-comm CFOs many, many times. And we've seen other brands make mistakes and we can like, we can, we can save you a ton of time and send you in the right direction because we've just seen things over and over again. We're like, just don't waste your time there. We need to do it this way. Just like the setup that you're talking about with that initial product upload, as well as like. the sequencing of channels and so I just want to call that out because that was a surprise to me honestly even as the founder of free to grow like I used to think that we were it was about providing enough value at a part-time price but like oftentimes we're finding we can provide more value than someone full-time because if if you're on a budget as you're scaling you're not gonna necessarily be paying for the best of the best e-com CFO, right? You're maybe paying for a talented finance person, but this may be their first stint really getting a chance to be an e-com CFO. So they're making the mistakes and figuring it out like me and my team did when we were inside brands in the early days. So we got to make the mistakes on their dime, and now we're here to efficiently give you a lot of valuable insight. for a very competitive price. So anyways, I think what you're walking through here is a couple examples of how you can actually, if you find the right marketplace growth agency, for their fee, they're actually delivering far more value than a full-time person could. That's not always the case. There are agencies that don't pull that off, but that very much can be the case if you find the right one. So what I want to chat about next is what are some common mistakes and or misconceptions that you see DTC first brands make when they go try to launch into a marketplace?

Tana Cofer:

Yeah, I would say, I mean, some of the mistakes, you know, we already shared, which was launching your entire catalog there. I would say one thing that DTC brands make a mistake on is they also, I've had some who want to launch on Amazon, but they want to launch their products 25% higher, like the price point higher because they want to. incentivize people to come back to their D2C. And I've walked them through, I'm like, help me understand how that would work. Like, as a consumer, I see an item at 25% more on your website, so likely it's higher than the other competitors. You know, as a consumer, they're likely not even gonna consider you. So I don't think you're getting, I don't think you're getting what you want. Like, it's just one of those things where, like, I just hear that a lot. Like, I wanna onto Amazon.

Jon Blair:

I see that all the time. Yeah. I see that constantly, actually.

Tana Cofer:

Yeah, and so that's one thing where I don't understand. Maybe it's just me, but Amazon also scrapes sites. I know your GDC may not have a bunch of traffic, but at some point they'll scrape you and then they'll totally deactivate your account. and you have to deal with all of that because you're not allowed to do that. You have to give them the best price. I don't see a benefit to that strategy. Those are the biggest ones I see. I would also probably say I get a lot of people who come to me and they say, I want to launch on Amazon and I want to be profitable right away. And I'm like, I love that. You don't come to me then because there's a lot of upfront costs at first, right? Like that would be awesome. Let's have a goal, let's have a strategy, but let me know, like let me know your profit margins so I understand what that looks like for you. But there are, there are FBA fees, like when you do at least the FBA route and shipping and stuff. And your product at the very beginning, if you're going to be on page 10, you're going to have no rank. And so I will focus on your organic strategy and getting you those reviews for as little money as possible. Absolutely. So I won't recommend you use tools that you pay like $200 for a review because those exist. I won't recommend those. However, I would hope that you would say, I want to launch an Amazon Marketplace, and here's the test budget that I have to do so, and my goal is to break even after three months and make money at six, or whatever that is. Let's be realistic. That's the other thing I get a lot too, I would say, is they want profit immediately. That would be really cool and sometimes it does work but we need to be realistic with what it takes to grow in a marketplace.

Jon Blair:

Besides investing and getting your ranking up and reviews, are there any other upfront costs that brands need to be thinking about as they're putting together their budget to launch on Amazon?

Tana Cofer:

Yeah, I would say the biggest cost is that FBA fee when fulfilling, your storage fee if your product sits for too long, so we need to be strategic on how much product we send in, and then what's called the referral fee. And that's basically the fee you pay Amazon, but they're cut of your product sales. And for every product, it's a little bit different about what that is, but you should budget like 10 to 15% for that just to be safe. So I would just say those are the fees to be aware of outside of any advertising, marketing, the deals, promotions, any of those. Those are the fees to be aware of with your product. What I will say, a lot of brands that come to me assume their D2C will be more profitable to them than their Amazon. And some brands, that's correct. That is correct. It's cheaper for them to fulfill on their own. However, We've done a lot of research and for a lot of brands, the FBA fee and the speed at which consumers get it and the quantity that you can sell within a day because of all those things. actually could make your profitability higher on Amazon than it is on your D2C. And think about all of the staff you pay for to fulfill, all of your current products, that warehouse you're paying for, those storage fees. I would just make sure you do the math and you really think through the cost to sell a single unit within your current Shopify model, and then we can run the same analysis for Amazon. And likely, it's very similar. And a few brands that I started working with, it's actually cheaper for them to do Amazon FBA. So they even added the plug-in on their website that does buy with Prime to actually try and move customers to buy on Amazon because the fulfillment was cheaper for them. So that's one thing I would also say, a lot of DTC brands come to me assuming some things with Amazon in terms of like losing profit and such. And that's just one thing I would just say, let's do the research before we make that assumption, because you would be surprised.

Jon Blair:

Yeah, I mean, that's one of what you're bringing up is one thing that we do is like the bread and butter of what we do as e-com fractional CFOs at Free to Grow. So what we're doing is in our projection models, we're building out the unit economics or the margins for DTC, right? And then when a brand wants to go to Amazon or they already have both channels, we're building out a separate P and L in our projection model and in their actual historical financials. And we're looking at the margin differences and there's a complexity that I'm going to turn our conversation to in one second. That is like honestly a lot of debate around but what we find is that There are some brands where like, well, first off, generally speaking, and there are exceptions, it's not all like this, but generally speaking, advertising is cheaper on Amazon, right? And then when you add in the 15% referral fee, then think of it as a marketing cost, because it effectively is. It's still, for most brands, including the 15% referral fee, tends to be cheaper than what it costs to acquire a customer on D2C. There's a nuance because it depends. If you're a consumable, you might have a really crappy first order profitability on your website, but loyalty will bring that profitability up over time, so it totally depends. But what we often see is shipping is a little more expensive on Amazon, although there are products where it is Amazon's more efficient and it depends on again on your scale because if you're really big on DTC maybe you've got killer discounts that you've Negotiated with your 3PL or with carriers and that's why it's more efficient on DTC, but for newer brands oftentimes Amazon's pass-through cost can be less than than your cost because you just don't have sufficient volume on D2C to negotiate those costs down. So the bottom line is you have to look at the whole P&L including marketing to really understand the contribution margin, which is the true profitability of each channel. And that's something that we really help our clients understand so they can understand where the next marginal or incremental dollar spent can actually produce the most profitability for them. So that's definitely a very important call out that you made there. And now here is the debate. It's cross channel marketing spend attribution, right? Then you're spending heavily on meta and Google and you're also, you also have an Amazon store and Amazon, you know, is benefiting from some of that top of funnel spend. So the tacos looks really, really good. The marketing efficiency looks fantastic on Amazon. but you know you're driving at least some of it from your millions of dollars of meta spend. I'm sure you deal with this dilemma all the time and who's accountable for what in the different channels. Walk me through some of the challenges that you see there and maybe even some of the ways that you advise brands to navigate that challenge.

Tana Cofer:

The answer that everyone's looking for is how do I know? How do I know it's coming from here and here and there? Well, the best way to know is to do whatever you can to add an attribution tax, right? That's the answer. And then you'll see, we'll actually be able to see as best we can where everything is coming from. And for Amazon, Amazon has provided Amazon attribution tax. They've had them for years now. And a lot of brands are nervous to use them because they assume if I add this tag, that means I'm directing traffic from my meta over to Amazon. And I just want to say on this call, that is not how attribution tags work on Amazon. It is literally tracking if Because your meta ads are going to take them to your Shopify. If they then go to Shopify, and they then go to Amazon, that tag will tell you. That's what that tag is for. It's trying its best to help you just figure out. It's a tag. It's not a URL. It's not directing them anywhere. And it's trying to help you see, OK, where did they come from? Where did they buy? The other thing is your attribution links. If you track a sale, you also get a kickback. 5%. So if that is happening, if you're like, I think we're receiving $10,000 a month in sales from our meta. Okay, well, let's add the attribution tag, figure that out and get some of that credit back. Because Amazon wants you to do that. Like Amazon is incentivizing you to do that. That's the first thing I would say is try to find out if that's actually true and add the tags to see. The next thing I would say is, One, in my opinion, that doesn't matter where they buy. At the end of the day, the price is the same, your profit, you've done everything you can to make it similar. Your marketing strategy, every channel should help all channels, right? And that's how it works. As you're running TV ads, Facebook ads, people are going to then look you up on their preferred channel, right? Mostly Amazon, but it could be Target, it could be Walmart. They're gonna look it up on their preferred channel, so we will see an overall lift. My goal as a background, as a marketing director, that kind of thing, my hope is that you would say, okay, that was a win. It'd be nice to know exactly where it came from, but that was a win. Let's do it again. Now, let's maybe do it on a different channel or something to try and diversify it. Unfortunately, I don't have all the answers. All I know is that marketing spenders- Why not, Tana? All I know is marketing spend in one place will benefit the other places. That's why I would recommend adding the tags to try and see if we can get some data. And in my experience, you will see those sales are coming from Google or from Meta or wherever to Amazon Attribution. And the Amazon Attribution, the way I've set it up, but I'd recommend you do, is you have different tags for each channel. So that you are essentially like, here's my Google Attribution tag. So if people are going from any of my Google ads and they're going to Shopify and then they're coming to Amazon, it'll track right here. And I have one for email, and I have one for SMS, and I have one for this and this and this. Does that make sense?

Jon Blair:

Yeah, I mean, and look, I think what your point is, I'll put this in more kind of conceptual framework terms, like, there's no purpose, there's no single attribution method, whether you're talking about using triple whale, or using the tags you're talking about, or using some of these other like media mix model modeling, yeah, you know, you know, AI software is like, None of them are perfect. What my general advice is that you have multiple tools, right? And what you just mentioned in the tags is a tool. You use multiple tools to try to figure out what the attribution is, right? And some of it is, so like for example, and none of them are perfectly right, right? But like if you've got like, I think of it as triangulating. So like at Guardian Bikes, we did some of the tags that you're talking about. And then we also used Google Analytics. We also used post-purchase surveys. And then we also had inserts in the box to try to drive post-purchase surveys. we used all that data to try to triangulate what the trend appeared to be. And it's not perfect, but when you look at it from multiple angles, you can get at least a sense of the trend, right? And then additionally, we're always tracking what appears to be the trend. the marketing of MER on Amazon, the MER on Shopify, and then the blended MER, right? So like, the MER on Amazon, which is the inverse of Tacos, is like, it always, it will, if you spend heavily on top of funnel, like on Meta, it will be artificially low, right? And your, if you allocate all Meta and Google spend to your Shopify store, the MER will be artificially low, But if you look at the blended MER cross channels at the same time, if you see that remaining stable or even going up. you know that, like you're saying, the tides are rising across all channels. So again, none of those are perfect attribution or performance measurement methods in and of themselves. But if you look at it from multiple dimensions, you can triangulate if things are getting better or worse, right? And go from there. We're still generally fans of saying, use the in-platform attribution to make changes to ads, right? Yeah. at the tactical individual ad level, like use what the platform is telling you is working. But take a step back and look at some of these other ways of looking at aggregate attribution to assess if your overall marketing mix is profitable or not. That's kind of how we advise clients.

Tana Cofer:

Yeah, no, I think that totally makes sense.

Jon Blair:

So, unfortunately, we do need to land the plane here shortly, but before we do, because at Free to Grow, as I mentioned, when I started the business, there's a big personal life aspect to it, right? And much more missional. in terms of our reason for existence. And one of those reasons is that we want to give accounting and finance professionals an amazing place to work where they can be challenged and have fun, but not sacrifice their personal wellbeing. So because of that, because that's near and dear to my heart and to our company's heart, I always ask a couple of fun personal questions at the end of every episode. So I actually gave you one to prepare for, but I thought of a second one that I'll throw out there. as a curveball, but first off, what's a little known fact about you that you think people would find surprising?

Tana Cofer:

Yeah, I would say the most surprising fact about me is that I am a trained bodybuilder.

Jon Blair:

Nice.

Tana Cofer:

So, most random fact about me, I did a competition in June, took fourth place. Yeah, so I spend two to three hours in the gym most days.

Jon Blair:

So funny enough, I did not know that about you and my mom is as well. Um, so my mom, she's 67 and she competes a few times a year. And, uh, yeah, she's, uh, she is, uh, quite, I mean, her workout regiment, whenever she comes and visits, visits me, we're out in Austin, Texas. She's in Southern California. She somehow, I don't know why she does this to herself, but she somehow always schedules her trips out here during what she calls peak week, where she has to, you know peak week, right? And we have to buy, when we go to the grocery store, we have to buy this whole list of stuff. We're eating chips and salsa, and she's eating carrots and celery and salsa, and peak week, Every time she does a peak week, she always says, this is my last competition. I'm never going to do this ever again. I'm like, yeah, right, mom. That's what you said last time. But anyway, so I actually know about that. And I think that's very, very cool. So my surprise question was about being a mom of three, because as a dad of three, I'd say that I have learned far more about life being a father and trying to straddle being an entrepreneur at the same time than like any other kind of like balancing act in my life. When you think about being a mom, but also being an entrepreneur, maybe if you could share just a little bit of a thing or two that you use as a hack or a guiding principle to just like try to keep that balance as best as possible.

Tana Cofer:

Yeah, those are great questions. So I work a more unique schedule so that I can spend the afternoons with my kids. Because of that, I get up earlier in the morning, like 5.30 or 6, and I do a lot of the emailing and some of the stuff that isn't as strategic that I can do right when I wake up. I'll do some of that in the morning, then I'll spend breakfast with them, get them off to school. Summers are just insane. I don't know how anyone you know, survive.

Jon Blair:

My house is insanity. My house is insanity right now.

Tana Cofer:

I'm ignoring the summer months when I say this, but that's kind of what, you know, that's what we do. And then I get them off to their preschools or high school. Like I have kids with a variety of ages, so to the schools. And then I work until basically one or two and then I'm done. I'm done. I will, might open up my email or my computer once the kids are in bed, but I don't work the afternoon hours. And a lot of, I only have two people on my team, a very, very small team. And they also, I'm like, what hours work best for you? What can you do with me? Some of them are like, Oh, I like the afternoons because my kids do afternoon kindergarten, like perfect. Right? So we make it work so that everyone, everyone on my team, including me can live the life and the lifestyle that we're hoping for. And so that's what I do.

Jon Blair:

I love it, it's super important. We didn't do this on purpose. We have a small team, there's about seven of us full time. But it has turned out to mostly be parents of small kids that were on the brand side and decided to leave the brand side and wanted a little more flexibility but still wanted to do something challenging and fun. And I think one of the coolest things is that there's seven of us that all have little kids And we're just so in the same season of life. And there's a couple people who aren't, and that's totally fine. They still fit into the team well. But they also have kids, they're just a little more grown. And so we don't hide that like, hey, I was up all night because my kid had a fever. I've got to take my kid to get their blood drawn. And I had to bribe them with taking them to the museum. And so do you mind if I do that this morning? I had someone I was talking to last week who had to do that, and I'm like, dude, 100%. Because at the end of the day, here's the stupid thing. If you say no, guess what? They're going to do it anyways, and then they're going to just feel like they're hiding it from you. And it's just like, let people be who they are. If they do good work, and they're good people, let them be who they are. It's just – it's a virtuous cycle that just like really creates an amazing work environment and it's one of the things that keeps me going every single day here.

Tana Cofer:

I agree. The two people I've hired are stay-at-home moms. I just feel like they're the ones who want this unique lifestyle. They want it and if we can help some of those people get it, then we should. 100%.

Jon Blair:

We have three stay-at-home moms on staff so I'm right there with you. I love it. Well, before we end, where can people find more information about you, your brand, and your agency?

Tana Cofer:

Yeah, so RosieRai.com pretty easy to find. You'll learn more about me and what we do and what we offer. and then glitter-face.com. You can also find both of those on my LinkedIn, Tana Cofer, T-A-N-A-C-O-F-E-R and those are probably the best places to find me. I'm also on Instagram, you can see my bodybuilding pictures if you don't believe me there and yeah.

Jon Blair:

I love it. Well, this was an awesome conversation. I'm truly thankful that you came on. This is a topic. Of course. There's just a ton of advice here that I think is gonna be super helpful for our listenership and even some of our clients that listen to the show. So if you guys are interested in getting help on the Amazon or Marketplace growth strategy side, definitely hit up Tana. And don't forget, if you want more helpful tips on scaling a profit-focused DTC brand, consider following me, Jon Blair, on LinkedIn. And if you're interested in learning more about how Free-to-Grow's D2C accountants and fractional CFOs can help your brand increase profit and cash flow as you scale, check us out at freetogrowcfo.com. And until next time, scale on.

Five Harsh Truths To Scaling DTC Profitably in 2024 and Beyond

Episode Summary

In this episode of the Free to Grow CFO Podcast, Jon Blair is joined in the studio once again by his co-founder, Jeff Lowenstein to tackle the essential strategies for scaling a Direct-to-Consumer (D2C) brand profitably. The conversation delves into the challenges of managing in-house manufacturing, the critical move into physical retail, the importance of embedding repeat purchases into product design, and how high gross margins can drive growth through paid advertising. With their vast experience in helping D2C brands scale, Jon and Jeff provide invaluable insights and practical advice for entrepreneurs aiming to grow their brands sustainably.

• Explore how segmenting customer data and
  analyzing cohort behavior can provide
  valuable insights to refine your marketing
  strategies

• Understand the importance of designing repeat purchases into your product development to drive sustainable revenue growth.

Key Takeaways:

• Learn how integrating manufacturing and fulfillment processes can lower fixed overhead costs, positively impacting profit margins and cash flow

• Discover why scaling beyond $50 to $75 million in D2C often necessitates moving into physical retail to tap into a larger consumer base

• Grasp the critical balance between repeat purchase subsidies and first-order acquisition costs for profitable scaling

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/

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.

Transcript

~~~

00:00:00 - Welcome to the Free to Grow CFO Podcast

00:00:30 - Introducing Jeff Lowenstein

00:02:50 - D2C and Vertical Integration: Challenges and Considerations

00:18:36 - The Role of Physical Retail in Scaling a D2C Brand

00:29:11 - Strategic Approaches to Physical Retain and Pricing Strategies

00:32:55 - In-House Manufacturing and Fulfillment

00:35:25 - Expanding into Retail with Consultants

00:37:08 - Repeat Purchase Strategy: Designing into Product Development

00:45:09 - Segmentation and Analysis for Repeat Purchase Behavior

00:47:45 - Importance of High Gross Margins for Profitable Scaling

01:01:00 - Final Thoughts

Jon Blair: All right, what is happening, everyone? Welcome back to another episode of the Free to Grow CFO Podcast, where we're diving deep on conversations about scaling a D2C brand, and it's all about doing so with a profit-focused mindset. I'm your host, Jon Blair, one of the founders of Free to Grow CFO. We are the go-to outsource finance and accounting firm for eight and nine figure D2C brands. And who do I have with me today? The infamous partner in crime, co-founder of Free To Grow CFO, Jeff Lowenstein. Jeff, it's weird to see you on a computer screen because I was just with you in person in New York yesterday, but great to see you. What's happening, man?

Jeff Lowenstein: Jon, you feel so close I could reach out and touch you through the screen. You're literally just here in this small office with me in New York City for the last 48 hours. So it feels weird, but also natural to be back in the little box on our computer where we spend so much of our time doing our work. Good to see you on the pod, and I'm happy to join and talk shop again.

Jon Blair: Yeah, man, it's gonna be good. We're gonna do something a little bit different on today's episode. There's a recent LinkedIn post I posted a few weeks ago that really kind of ruffled a lot of feathers and just got a lot of people talking about, I think, real issues and challenges with scaling D2C. And honestly, there was some really cool comments that I think even brought to the discussion some things that I wasn't thinking about. And it left such an impression on me. I was like, hey, Jeff and I should riff on what I talked about in this post because it wasn't just a post to just like get people all riled up. They're real true, they're beliefs of mine about scaling a D2C brand profitably. So, you know, the post was called five harsh truths about profitably scaling a D2C brand in 2024 and beyond. And the reason why I said 2024 and beyond is because some of these things weren't necessarily true in the early days of e-com. Back in 2017, 2018, when I was scaling Guardian bikes, not all these things were true. And so I just wanted to put something together where we could have a conversation about these things and just like elaborate on some of those points that, you know, you can't really be elaborate in short form content. And I think you have a lot of very interesting examples and additional perspectives on these topics from where you sit in the marketplace and your set of clients that you oversee versus the ones that I oversee. So, I mean, dude, let's dive in. Here's the first one. And this one, I did another post on this like a couple months ago and it actually upset a lot of people. That wasn't my That wasn't my aim, but it's about D2C and vertical integration. And so in layman terms, bringing manufacturing and fulfillment in-house. And what my statement was, was D2C and in-house manufacturing slash fulfillment don't mix. It drives too much fixed overhead, and unless you can reach a nine-figure annual revenue, it's gonna wipe out your profit and cash flow. Let's just riff on that, man. What are some of your thoughts when you hear that statement?

Jeff Lowenstein: Well, I don't think it's quite as hot a take as you think. I mean, I completely agree. It's really hard to run an econ business between getting your storefront in tip-top shape, getting fulfillment to the customer, customer service. There's so many things you have to get right and are hard to get right, and getting production in your own facility right on top of all those other things is really freaking hard. So I think there's that side of it, too. The great thing about a traditional econ business is that you have mostly variable cost P&L, right? And so Really, what you're getting at is switching from a variable cost COGS to a fixed cost, moving more of it to fixed cost. It's not entirely fixed cost. You still have your raw materials, right? But that can be great if you're able to scale into that and create operating leverage. But for most people, getting from zero to eight figures takes time and effort. Starting out of the gate producing your own product is a really big swing that's going to be hard to do without raising significant capital.

Jon Blair: Yeah, and you know what's interesting? Your comment about like the hot take. I didn't expect this to be a hot take, right? Like this was just an observation that we've had in working with several dozen brands at the same time, right? And seeing most of them outsourcing fulfillment and manufacturing and a small subset of them. Insourcing it and it does work for some brands, but generally we see it not work for brands, right? there are always exceptions, but Most brands have to deal with the rule not the exception and so like I was actually surprised when I wrote this post that so many people got fired up about it and what what I actually realized in the comments was that like there are a lot of people who either had figured out an exception to the rule and so they were like hey this is possible right or they were in the middle of trying this and they had a firm belief that it was possible and so like a couple things i want to say like one there are exceptions to the rule and the reality is in short form content you can't like write this long thing that caveats everything right you have to say what's mostly the universal truth right but another thing that i want to mention is that there's two And again, this is generally speaking, there's always nuance, but there's two ways that I have seen brands be successful on bringing manufacturing and fulfillment in-house. One is the obvious, or I think the obvious one, sales volume, right? They're able to scale enough to actually realize the economies of scale of, and of operating leverage of like converting more variable costs to fix costs, right? That's one. But the second one is there is a second one that is closely tied to DTC and this is why Guardian bikes decided to vertically integrate. because they needed control over the quality and the experience, but they were able to charge for that. in the D2C channel. And I want to like all caps charge for that, right? Because there are some brands that I have seen try to insource this stuff to control the experience, but they're not able to charge for that really amazing unboxing experience that they do by doing their own packaging and fulfillment, right? And so if you have a strategic sales advantage, sales and marketing advantage, that needs to be enabled by vertical integration, and you can charge for that, that is another way that I see DTC brands actually successful, but most brands don't figure that out.

Jeff Lowenstein: Do you agree? I agree. What I think you said, you said a couple of things that are interesting, which Again, there's always exceptions to the rule. So when does this work? It works when you're selling a product, you've designed a product that is truly differentiated and cannot be produced in a contract manufacturer setting, or it's so proprietary that you don't feel comfortable allowing someone else to produce it, or you're not confident in the ability of someone else to produce it. The other thing you need to think about is if you're going to start this way from scratch, is how large is that initial fixed investment? And so for those that do make this work, they're able to start with smaller production capacity, and then eventually you do have to turn that into larger and scale that, right? Totally. you don't want to go too big too fast, but you also don't want to be locked into the smaller one, right? Because you're, you're going to have to grow beyond that eventually too. I did recently actually invest in a brand. I do try to do a little bit of angel investing that is making their own product and it's going very well and they have a different methodology for production than the competition. And that's been a huge value add. It's been their competitive advantage. And so they're very happy with being constrained on the production side for the time being because of their in-house production. They can't produce quite as much as they would like to be able, or as they could sell. They are constrained for the time being, but they're okay with that because they're going to keep control of that process and they're going to be able to invest in a larger facility soon. And their whole business model really does revolve around that. I say that with the caveat that that is more of an exception than the rule. And so it does work for some people. But I think for most people, your time is better spent working closely with your manufacturer to design your product in a proprietary way that is still differentiated and using existing infrastructure that's already out there in the marketplace.

Jon Blair: Totally agree. Totally agree. To draw out an important theme here and what we're both saying, I don't want to sound like a consultant. The word strategy is overused in the consulting world. Is it strategic to insource these things? Is there true strategic value? Because if you think about it, like you said, there's fixed costs and there's upfront investment to getting this stuff up and running. So you do need to analyze if it's going to take X dollars to get this thing up and running. what is the strategic value that's being created either in being able to charge more and or lower costs over time or some other competitive advantage in the product and how long will it take for that set of advantages strategic advantages to pay back that investment. We did this analysis at Guardian Bikes and we actually distilled it down into like, hey, it's gonna cost X hundreds of thousands of dollars to get this facility up and running. We're gonna save this many dollars per unit on effectively outbound shipping. We're gonna save this much on containerized shipping because we could ship components instead of full bikes so we could fit a lot more in a container. And then additionally, we had a strategy for how we were going to reduce inventory levels and we're able to distill that down into like, Hey, it's going to take this many units sold to pay back this investment. Right. And we, we felt pretty confident in certain sales volumes we were going to hit. So when we went to go raise the money for it, we could say, Hey, we just need to sell this many units for this to pay for itself. And let us show you why we're going to be able to sell that many units in two years and this is gonna pay for itself in two years. It's about being intentional about the true incremental impact of making these investments and just doing a little bit of homework.

Jeff Lowenstein: Yeah, it's interesting. What you just said made me think of another consideration that I've seen with some of my clients that do make their own products. is the sourcing component is much more complicated when you're buying your own components, right, and raw materials. And especially if you're in a category where it's, you know, natural products or agricultural products, those components and raw materials might only be available at certain times of the year. And by the way, those MOQs might be way, way, way higher than what you would actually need to buy if you were just buying finished products from an outsource manufacturer. And so there's a whole different supply function, team, cash flow consideration that you need to consider. You might need to be storing products that are, you know, you might need to buy like two years of a certain component. two years of cover because the MOQs are so high when you're sourcing direct. So that type of stuff you don't always think about when you make these types of decisions. Totally. But it can really make everything a lot more complex.

Jon Blair: Well, and to distill, like to kind of like distill that down into a summary, there's fixed car, there's upfront investments to consider. There's the changes in variable costs, right? And margins over time post the changes. There's the changes in ongoing fixed costs after the, after this, but then what you're talking about, there's a change in working capital, right? Your inventory, uh, your, your inventory days, equation changes. This is a perfect example of where a CFO can help with a three statement financial model, right? Where the three statement financial model is not just projecting out the P&L impact, which is like the fixed cost changes and the variable cost and contribution margin changes, but it's also, you're also able to forecast What if inventory days change like this or like that because of, so like that three-dimensional view of projecting out the P&L, the balance sheet, and then ultimately the cash flow impact is really important. You can't, you shouldn't make one of these decisions just by looking at the P&L impact because like you said, there's very clearly a working capital impact but if not other reasons like definitely impacting inventory days but probably impacting AP days as well because you're now buying different types of materials and components from different vendors and you may be able to take advantage of better payment terms. I've seen it happen where you can get better payment terms with a component supplier versus the finished goods supplier. But I've also seen it work out in the wrong direction, which is all of a sudden you had really good payment terms or decent ones with your assembly factory. You're now the assembler and you go to these component factories and you're starting from scratch. And so this is where a CFO is really, really important to help you get that three-dimensional, three financial statement projection view of making a decision like this?

Jeff Lowenstein: Yeah. I mean, I'm just thinking about how the balance sheet changes, right? You have fixed assets all of a sudden with your machinery and what's going on on the floor. And then you have the inventory and finished goods, but you also now have all these components and raws you need to keep track of, uh, as well. So it gets, it gets quite, uh, it's quite a different balance sheet to take care of and make sure you're managing. And then even on the P&L, another thing is you're actually moving away from gross profit. You're moving costs out of gross profit in terms of COGS when you're buying finished products at a higher per unit cost. And if you make it in-house, now actually some of that cost is actually going to hit your payroll line, which people don't think about either. Again, that goes into the operating leverage conversation, but people aren't really fully thinking through what that means, right? You have people on the floor making the product, you might have managers, you might have other sourcing people running around doing things, right? So the payroll line actually goes up quite substantially as well.

Jon Blair: Yeah, and one thing, I mean, I've talked about this with several of our clients and our prospects is that like operating leverage It's called leverage for a reason, right? Leverage means it is something that you can leverage to your advantage, right? But it comes with a risk. And the risk is it takes more revenue to break even, right? When you have less operating leverage, it can take less revenue to break even. So that's the general disadvantage. But the advantage is when you cross the break-even point, the number of dollars that drop to the bottom line for every dollar of revenue after that is massive. Whereas if you have a mostly variable cost, like cost of goods sold, you keep paying the same variable cost no matter how much you scale up. And so it's a question of where the risk lies. Like for a company with a lot of operating leverage, the risk lies more heavily before your break-even point, right? And I would say again, it lies again when you scale past the break-even point, you have to make the decision of increasing capacity. Because then you have this new step you have to take up in operating leverage and get to break-even again. And so it's not a good or a bad thing. It's just a different game. And you have to be able to recognize it's a different game. And you have to have the tools from a financial planning standpoint to be able to make sound decisions as you're dealing with scaling with a lot of operating leverage.

Jeff Lowenstein: It looks like a staircase function. Your fixed costs are flat for a while while you're in your current facility when you make it in-house, and then when you move to a bigger one, it's a big jump up, and then you're flat for a while as you increase sales to the maximum in that facility. I actually have a client that I just helped with a fundraising deck and analysis for. They make their product in-house. The math that we did was we calculated at certain unit volume levels exactly how much operating leverage they would realize and how the margin expands. as they scale. And it's very clear. There's going to be a lot of margin points opened up as they continue along that path. And it's going to be a very profitable, successful business in the future. But the reason they need to raise money and the reason we're doing this exercise is they're still below that break-even level. And so there needs to be a cash injection to help get through and help invest in some of that growth. So it's exactly what we're talking about. We just put that together in the last couple weeks.

Jon Blair: So then let's talk about this, the next point from this LinkedIn post, which is related because in some way, because it talks about where is the volume out there for the brands, right? Like what channels are like high eight figures and nine figure revenue volume. And so what I said was the D2C brand with nine-figure aspirations must expand into physical retail. Sorry, that's just where the nine-figure addressable market lives. Getting to 50 to 75 million D2C can be doable, but if you want to scale beyond that, get ready for retail. Now, let me contextualize this a little bit. Back in 2017, when we started Guardian Bikes, there were D2C darlings that got to nine figures on their website. And crazy enough, we know some, we know them personally, like in the mattress industry, who got there without top of funnel spend, who got there all from spending on Google, like basically bottom of funnel, like PPC. Those opportunities generally don't really exist anymore because those were like the first movers in these D2C spaces, right? So that's dried up. We work with plenty of brands. I've worked with plenty of brands and we have several clients who have gotten to very healthy eight figures, right? But the ones that wanna push into nine, we do have a unicorn that is e-comm only that we won't name. That's pretty cool. But they're the exception. That's one out of 25 clients that we work with, right? If you wanna break through 50 to 75 million, you gotta get into retail. And it's just because That's where the high eight figure, nine figure addressable market is. That's where the consumer is. I didn't come up with this. Candidly, I talked about this on our podcast many months ago with Ryan Rouse and Ryan Rouse who's one of my mentors, was just like, dude, it's just the way it is. I'm not trying to say, I'm not trying to ruin your dreams. And he's like, by the way, if you wanna run a mid-eight figure brand, D2C only, and not expand to retail, he's like, that's okay. If you can sustain a competitive advantage and sustain your margins, you got strong repeat purchase. You should do that if that's what you want to do, but if your aspirations are to get to nine figures or high eight figures, physical retail is most likely a reality and it's just the truth of where the TAM is. What are your thoughts about that, man?

Jeff Lowenstein: There's a couple of things I want to respond to. You have my brain going in a few different directions. I think the last point is like really interesting. I think that there is a natural ceiling for some brands within direct to consumer and you can have a really profitable, stable business at that level. And so some brands actually that ceiling might be lower, uh, depends on the channels you're going to be in in terms of your marketing channels and all that depends, depends on your category there. I think I have this idea in my head and I actually, um, I respect, I, put a comment on Preston Rutherford's LinkedIn post about this the other day. That natural ceiling that Ryan is alluding to and that I'm talking about is really important to understand because every incremental sale you get beyond that is going to be super expensive for you to acquire, and it completely changes your margin profile. And more brands die by trying to scale too fast than the other way around. And so those extra incremental sales are going to be so expensive. And you'll get more sales. They will come, but they're so expensive incrementally that they can change your whole business. And you're going to invest in people. You're going to invest in spend. And it's not worth it a lot of the time. But I know it's hard, right? You're a founder. You've worked super hard at this. It's been multiple years, blood, sweat, and tears. You see the rich wallets and the true classic tees that have successfully done this. The truth is not every brand is meant to be a nine-figure brand DTC only. that mentality of I'm going to be the next simple modern or whatever is actually very harmful. And I'm not saying don't be ambitious. I'm just saying there is such a thing as going too hard and too fast. So yeah, that was one of the things that I wanted to respond to. And I think that's a little bit of a hot take. It's hard for people to respond to that when I say that, because it feels like I'm shooting down their hopes and their dreams when I bring up something like that. And like, oh, you're the CFO. of course, you're more conservative. And so I also struggle with like, you know, not not being too negative and like trying to, you know, rain on someone's hopes and dreams. But, you know, that is something I do feel very strongly about.

Jon Blair: Yeah, so do I. But but here's the thing, like, if you dig in, like, I've I've listened to a lot of interviews with the true classic guys over the years, like if you dig into their story, Dude, they struggled to get to where they got and when they got there, they really started getting squeezed on their margins. It was not like You know all sunshine and rainbows like it was like a constant fight to like what do we do with email? What's the next offer? Like what like it was it's I think the point that i'm making because i've worked with a couple brands that have gotten They were on their way to that and they were crushing it and seemed like everything just worked right on the way up to 50 million and that 50 million and beyond They still figured out how to continue growing, but it got really challenging. And not just the economics, it's like, what is the next thing that we try? Is it the offer? Do we need to think about product development? Do we need to think about channel mix? And in reality, what it is is that The next incremental dollar that you go to acquire, it just takes more strategy to get that next dollar of revenue. When you see a brand that gets to 100 million, I can guarantee you that it was a dogfight to make it happen. We knew a lot of people that were early on at Tuft& Needle. that worked for us at Guardian Bikes. And like, sure, at the beginning it was like crazy growth, but they really had to figure out, like once they started saturating certain marketing channels, they had to get really, really creative. And they had to do it on a budget because they were bootstrapped. from day one. They didn't take on any outside equity capital. And so like the ideas that they came up with to in a very bootstrapped way, try to do more top of funnel advertising was really, really interesting. They had this one billboard campaign, like funny enough, out of home billboards, like actually really, really crush it for them at a certain stage of their growth. And they had this one campaign that just like, I believe it was a black billboard with white writing and it just said, mattress stores are greedy, tn.com, right? And they bought the tn.com was the landing page for that to try to figure out attribution. But they were going around and they were buying up billboards that were sitting there unsold. And so the advertising companies were selling them at a discount for whatever period of time it took for someone. You could do month to month or like a short term contract for super cheap until someone would come in and buy a long term contract. So they're finding all these obscure billboard locations that had nothing on it. striking a deal with the companies that own them and coming up with these really provocative one-liners that would get people to their site. And I'm just mentioning that because you gotta get more and more creative, right? But at the same time, figuring out channel mix is really important. And one thing I wanna say about physical retail that I don't wanna sound like a broken record, but this is something that I've learned since we've been growing free to grow together and have worked with dozens of brands. Don't try to go into physical retail just because you feel like you're hitting a ceiling in other channels. Again, I hate to sound like a broken record. What is the strategy for going to retail? And I'm gonna be more specific instead of just say the word strategy. Why is that channel strategic for you? Because physical retail actually isn't strategic for every channel. Guardian bikes may never, ever, ever, go physical retail because that is not a strategic channel for guardian we have to tell the story of the safest kids bike that costs more in physical retail unless it's a single brand store and that is a guardian bike store We're not going to be able to tell that story. We tested it. It's very hard to do that on a Walmart bike aisle or independent bike shops. If there is any physical retail, strategically, Guardian probably has to do a single brand store like a Tesla store or an Apple store. The point that I'm making is Don't just say physical retail because I want to get to a certain amount of revenue. What is the channel? How can you use physical retail strategically? If you're a consumables brand and you're doing cosmetics, it's likely that Target's a no-brainer and there's something very strategic about going to Target. For Guardian Bikes, Target was not strategic for us and there's no way we would end up doing that. I think that's very important to just not, just try to expand into channels to get revenue, but to ask yourself, what is the next most strategic channel for me to actually have a competitive advantage or some unfair advantage in because of either my product or my marketing or something like that? What are your thoughts on that?

Jeff Lowenstein: No, I completely agree. I mean, it's, you know, we like to think that direct-to-consumer e-com is like the whole world because we're in the industry. we could, we all talk to partners and brands all day, but like there's, you know, I can't remember off the top of my head, but I mean, it's only what, like 15% of sales are online in the U S right. The rest is physical retail, some, something around there. So, I mean, that's where the consumer is. That's where they're shopping. You, you do need to go there if, if you're going to grow beyond a certain point, it doesn't mean it's right for every brand either. That's it may not be. a good option for everyone. Another thing to be strategic about and just to remember is you need to maintain and stay on top of your retail sales and your actual retailers in the same way that you are on top of your site, making sure nothing's broken, right? Just because you get a few POs to a few different stores and you send out some product doesn't mean it's all going to go well. Is your packaging and the way that you're shipping it out to those stores working well? Does it appear nicely on the shelf? Are you in the right aisle and category? All that type of stuff is important. And so I actually recommend working with a consultant that knows what they're doing. Totally. In terms of getting brands into stores and scaling up the number of doors that you're in. Going deeper in one geography first is another strategy or tactic really that I think does well for people because you get better feedback. If you show up in a few stores in the same geography and people see you more and more, I think there's a positive feedback loop there. And then you can also understand, you know, you're getting like your, your product velocity metrics within like a certain, within a set of stores, uh, and understanding those versus like overall sales, right. Is, is, is something that people need to, you know, unpack and not just look at the aggregate numbers.

Jon Blair: For sure. For sure. Yeah. I mean, and another big pain point, I talked about this with, um, Renee Hartmann on one of our previous episodes is like the, the, Multi-channel pricing strategy right becomes a really big challenge and something you definitely have to police and work with retailers on because like You do lose control over your pricing. You have to know that that's going to happen. Yes, there's an intentionality and a strategy to trying to work with your retailer on it, but there are just going to be times when that lost control is going to result in them doing something to your pricing. Going back to your comment or your suggestion about using a consultant, Use a consultant because they can help you go in eyes wide open. I was actually talking with Amazon Growth Consultant right before this on the other episode that I was recording today. We were talking about how if you find the right consultant, whether that's a fractional CFO like Free to Grow or it's Tana who I was just talking to who's an Amazon and Marketplace Growth Consultant or Renee Hartmann who's retail consultant, they can help you go further faster. Yeah, you gotta pay them a fee, but they've made all the mistakes, right? They've made all the mistakes that you are going to make if you don't have someone to help you go in eyes wide open and say, no, no, no, no, don't do it that way. I've made this mistake. I've seen many brands make this mistake. I know this may be counterintuitive, but you wanna go at it this way, and here's why. I think the challenge is, finding the right consultant because there are plenty out there who will cost you money and you don't get that value, you don't go further faster for the fee. It's just a comment that I want to make that especially Eventually, as you scale in retail and it becomes a significant portion of your revenue mix, you're going to want an in-house retail team. But you don't need to step out and hire a full-time in-house retail team when you're just getting launched. You're testing the waters and you're seeing how much volume you can get. That's the perfect time to use freelancers and consultants. to help navigate the various aspects of expanding into retail. And then if it sticks, because you can turn that consultant off whenever you want, and they're probably cheaper than a full-time person. But if retail sticks and you start scaling, then you can bring the most valuable roles in-house to support that. So anyway, it's just another thing to consider as you're expanding into retail.

Jeff Lowenstein: Yeah, absolutely. And I mean, they can help you avoid a lot of unforced errors, right? So Walmart, for example, is notorious. If you don't ship exactly the right quantities in the right way, you know, like with the right inbound logistics, you're going to get charged out the ass for all these fees that you don't see coming and they're going to hit you. Only, you know, much later you're thinking you're, you're getting paid for your product, but between certain types of trade spend and all these fees and logistics fees, you know, your margins are. Everyone knows your margins are lower to begin with on wholesale, but you know, there's all these hidden fees that you may not know about, uh, going into it for the first time. So using a consultant can really help you avoid some of those or even like just understand what they are so that you can say. Maybe I'm not ready for Walmart. Maybe I need to get my own operations in order first. That type of decision is quite important as well.

Jon Blair: One other note I want to make. When I was talking to Tana on this episode earlier today, she was talking about the sequencing of expanding into marketplaces. In her opinion, you go Amazon, then Amazon Canada and UK, and then Walmart And then depending on your product category, like Target, Wayfair, and what I'm pointing out is what? A sequencing, right? And like I'm realizing the older I get and the more that I help, like we run our own business and work on our own strategy, but then also work on the strategy of the numerous brands that we serve. I think it's very common when you're talking about developing a strategy to talk about what we're going to do. I think generally people are really good at coming up with the what strategy, but I think that more attention needs to be paid to the sequencing. When you do something, I'm actually finding, as I get more gray hairs on my head, I'm finding that when you do something is actually oftentimes more important than what you do, and can lead to either success faster or setbacks. Now, that's where, again, where consultants have been really helpful to me in my life, like on the brand side, is they have some experience of doing things in the wrong sequence. Right? And say like, no, no, this is the right sequence to do it. And that will, that will add years back to your life that will add dollars back in your bank account and it will take a lot of stress. And so just wanted to make a call out about sequencing. Sequencing is really, really important. Physical retail maybe isn't the right second channel. Maybe you should go to Amazon seller central first, right? To squeeze out that next bit. of revenue, and then maybe you spend some time on the marketplaces, and then maybe you go to physical retail, right? And so, just some things to consider if you've got those big high eight figure, nine figure aspirations. Really think hard about the sequencing, right? And again, not to sound like a broken record, but why does that sequencing matter strategically? Like, ask yourself that question. Why would I want to go here first? as opposed to here first. And I think that if you bring the right people around the table to chat with and you challenge yourself with those questions, you'll probably make a better quality decision. Absolutely. What else do we have on the list? So, repeat purchase is designed into your product catalog during product development. It can't be fixed through advertising efforts. So, this one actually upset a lot of people too. And again, I wasn't This is not trying to make this a hot take, right? It's just I'm realizing, I mean, I have to look back to see how many total brands we've served. Maybe 35 in the last two, two and a half years, probably approaching 40. Right now we have 25 brands we actively serve. That sample, I've run single brands before this, but being able to see 35 plus brands over the last couple of years, it just really hit me hard that repeat purchase is mostly a product problem. Are there things that you can do with advertising to incrementally improve it? Of course, there are things. But all the advertising in the world can't fix a product problem. And if you didn't intentionally think about repeat purchase when you designed individual products and product lines and product roadmaps, you're doing yourself a big disservice and you're leaving it up to chance that repeat purchase actually happens. And so I'm actually starting to believe this really wholeheartedly the more brands that I work with that you've got to fix and design. You've got to design in repeat purchase up front, not on the back end. What do you think about that?

Jeff Lowenstein: Well, I totally agree. I don't even know I don't even see the other side of that argument. It's a behavior related to how you use the product that you're going for. If it's going to be used over and over again, that's fantastic, and it lends itself well to subscription, which is obviously great as well. But also, if you're a single-use Or single purchase product, right? That's also okay. You need to know that expecting repeat purchase in a place that it's not realistic can get you into trouble. There's another angle to this, which is if you have other products and other products that you can sell. that might be complimentary or cross sell. Once you have that, that person's information, um, that's not necessarily a typical repeat purchase because they've consumed the product, right? So in particular, home goods is a category where it's not as easy to get that repeat purchase like skincare or supplements or something like that. But home goods, I mean, If you have a great product, a great aesthetic, people like it, they're going to need a different product next month or next quarter. There is still an LTV there even though it may not be built into your exact first product or that product may not be consumable per se. That type of stuff is actually important to think about as well.

Jon Blair: Yeah, that's a really good point. That's a super good point. And I think, I think the other thing to keep in mind too, that to riff off of that repeat purchase velocity or frequency, you've got to, you just really need to consider that. And here's why. So I actually, I've known this, but I think I heard it articulated really well in a conversation that I had with Liam, one of the co-founders of Aplo G roup. a marketing agency that we have some shared client base with. So there's the way that I've termed it is that when there's a repeat purchase, one way to think about it is it's a marketing subsidy, right? That like when you have people coming back and buying stuff and you're spending no money on reacquiring them, that revenue with no acquisition costs is a subsidy or can be thought about as a subsidy to subsidize acquiring new customers. And you're on the seesaw, right? We're on one side of the seesaw. You've got repeat purchase subsidy. And on the other side, you have first order acquisition at potentially a very low margin, depending on how fast you're trying to scale. Because if you're scaling spend fast, your MER is going to take a dip fast. That's just how it works. It's going to take a dip fast. If you have the repeat purchase side of the seesaw rising, because there's a lot of frequency, like things are being repeat purchased with a high level of frequency, you're getting a bunch of subsidy that you can then push back down on the seesaw to acquire a bunch of people at a crappy margin on your first order, right? But as soon as that side of the seesaw starts to tick up too high and come out of balance, your profitability at the company level really starts to suffer. And you do need to either figure out how to increase the velocity of repeat purchase to rebalance it, or you need to pull back on that first order acquisition spend, right? And it's about scaling fast. So what I've actually come to learn is that scaling fast profitably is in large part determined by your repeat purchase velocity and how fast that side of the seesaw is rising to then take that money and push it back down into that first order acquisition. And if you're getting slow frequency, You cannot scale as fast. You can't scale as fast at a profitable level. It's just how it works. And so that's why I've started to realize supplements businesses can be just so fantastic because there's such a there's such a high frequency of repeat purchase. It's a noisy space, right? So you better be damn good at marketing and product. But if you can figure that out, it's an amazing business that can grow super fast, super profitably, because you have so much of this repeat purchase subsidy to push back into new customer acquisition.

Jeff Lowenstein: You said it very eloquently. I had not thought about the Seesaw analogy before, but I mean, those things being in balance or out of balance determines your growth rate, your profitability on the P&L, right, and how fast you're scaling. So the thing that I like to look at when I'm thinking about repeat rate and all this is not just looking at the cohorts. The cohorts are important and understanding how quick you're getting pay back on that acquisition cost. Or even better if you're first order profitable, right? Like you're increasing that contribution pretty quickly. But what I like to look at is actually segmenting. What I find in a lot of businesses, they look at the cohort in aggregate and they say on average I get you know, three more purchases in the next six months, right? Or like I have a $250 six month LTV. But if you segment that further and say, uh, you know, do I actually have some people that are buying five times, uh, in the, in the first three months and some people that are never coming back, obviously there are people that some people that never come back and some power users, but understanding those segments of your, customer base is super important and not something that's always so easy to find in the data, but you can actually see patterns like which, which product are they buying first and which product are they buying second, third, fourth, and fifth? Is it the same? Is it different? Where, where in the product category are people going? What's the easiest thing for them to buy the first time asking yourselves, yourself, all those questions, right? Allows you to understand the buyer behavior better. which can then feed back into better acquisition strategies as well. And so that analysis is something a CFO can help you with. A good marketer can do it as well. But when I think about retention and repeat purchase rate, I'm always thinking about segmenting it out rather than just looking at overall averages.

Jon Blair: Yeah, no, I mean, it's interesting you mentioned that because like, even going from like every level of segmentation you can do. I'm a big fan of like starting high level and then segmenting one layer at a time. Because if you try to like go all the way down to the most granular level, you can get lost. And there's a number of things that can cause issues. But like if you even just start like thinking about Okay, first you just see revenue across the business and spend, that's like blended. And then you go, okay, hold on, now let's go revenue and spend, MER by sales channel. And then let's go, okay, but what's the first order economics versus the repeat purchase revenue in each channel? And then you start going, like, when you start kind of cutting one layer deeper, one at a time, each time you get your, your intelligence quality goes up and you can make a decision on another lever or maybe a couple more levers. Averages are definitely something you still have to track to just see how everything is funneling or bubbling up to the top. It's really dangerous to draw too many conclusions off of highly aggregated blended averages. They are useful in their own right, but you have to be honest with yourself about what conclusions you can draw and cannot draw from using aggregated blended metrics versus segmenting them out.

Jeff Lowenstein: Yeah, absolutely. And I mean, I don't mean to get into like the attribution wars here. Like that's not where I'm trying to go and get.

Jon Blair: That's a good, that's a good webinar. Um, attribution wars. We can get will from prescient. We'll get someone from triple whale. Um, we'll get someone from, uh, North beam and let's like, here we go, baby attribution wars.

Jeff Lowenstein: Let's go. Cause the thing that gets complicated, right. It has you drill down to those lower levels is you can see data from a certain platform or from a certain attribution tool. And then, you know, maybe they don't make sense when you look at them, compare them side by side. Right. And so it is important to, like, actually have a really good feel and understanding of the highest level, you know, so you can for sure now and really, you know. understand how it all fits together because it is true that it's all interconnected as well, right? So that's a whole podcast and deep dive for another day. Totally agree.

Jon Blair: Well, let's go on. Let's go on to the next point here. This has turned out to be a meaty conversation. I love it. I had a feeling. All right. The profitable D2C brand that reaches 20 million plus in annual sales through paid advertising has high gross margins. plus or minus 80% and can turn a profit at a two MER. And so to contextualize this a little bit, what I'm getting at is that like, this actually goes back to that seesaw example in some ways, that like how fast you can grow, right, is highly determined on what your blended margin is, right? And without even bringing repeat purchase into the equation, from a blended margin perspective, the brands who can get to eight figures, like healthy eight figures in revenue fast, they're able to scale up, spend fast, and they're able to withstand quickly diminishing MER returns, but the reason they're able to withstand it is because their gross margin is so high. When they have really good unit economics, what we call contribution margin before marketing, which is net sales minus landed cost of goods sold minus shipping and fulfillment and credit card fees. When that number is really high, You can take a two MER, like 50% marketing spend, and still turn a profit. Here's what you have, the advantage you have at your disposal. And I've seen a brand that I worked with at Free to Grow do this. They literally went from scaling like, spending like tens of thousands on meta, to millions a month on meta. Really fast, and they were still profitable. And even though their marketing spend was 50% of revenue, their margin before marketing was so high, that they could withstand it and still turn a profit. And volume went up so high that even though their contribution margin was like less than 20% after marketing, they still turned a massive profit in dollars. And so I'm just, now hear me out here. I'm not saying if this is not your economics to quit and throw in the towel. I'm not saying that. But I'm saying you probably have to grow slower. That's what I just tend to see out there. What are your thoughts?

Jeff Lowenstein: Yeah, I totally agree. There's different ways to get there. I mean, look, this is not meant to be a math test, but let's just walk through that P&L that you kind of alluded to. And that's, I think, actually a really interesting one for certain categories for people to focus on, right? And so if your net sales is 100%, your landed cost of your product might be 20%, which gives you an 80% gross margin, right, which is Very solid then you might have another 20% between Shipping and fulfillment could be 15 credit card fees could be four or five. Let's call that bucket what we call variable order costs. Let's call that 20%. So now you have 60% left in contribution before marketing. That's what Jon was saying. 2x MER is the same as 50% of your net sales is spent on marketing. That's the same thing, right? So now our 60% contribution minus that 50% spent on marketing leaves you with 10%. And if you're below 10% on your overhead, if you're running lean, you can be above break even, right?

Jon Blair: Which the brand I'm referring to was at that time, right? Because they scaled from basically 1 to 35 million in one year, which is crazy. And their overhead was like 2 to 3% of revenue. So they turned a 7% profit and it's dollars. In dollars, it was a huge number of dollars. The founder was making money hand over fist in dollars, you know?

Jeff Lowenstein: That's amazing, right? Because what some people think about, right, is let's say I have really strong gross margins because I designed the product a different way or just because I have a really great manufacturer that no one else knows about. And so I have savings in my product costs and therefore high gross margins. A lot of people will just say, great, more profit. And that's a totally fine way to think about it. That is great. More profit in your pocket per unit sold. However, another way to think about it and sounds like this brand you're talking about did this. They took those savings and they said, I'm going to invest that back in marketing so I can scale further. Yep. And that that extra marketing spend might allow you to capture share from the competition. Right. If you're willing to spend a little bit more. because your economics are better, and you might be able to reach a lot more customers, and you make more profit by selling more units and scaling faster, rather than making more profit per unit on an ongoing basis. So hopefully I didn't confuse anyone with that example, but I think that's a really interesting strategy, is investing your gross margin savings back into marketing.

Jon Blair: Yeah, I mean, you and I, I can think of a few clients we have who just have these really killer margins before marketing, and they do have a decently low MER, like 2.25, 2.5, nothing stellar, but they've scaled up to 10 plus million, and they're turning a profit, and their overhead's super lean, right? Which actually, funny enough, segues into the last point from that from this post, which is to continue turning your profit at scale, see number four, which is what we just talked about with the margin and the two MER. See number four above and keep your overhead lean, like less than 10% of revenue. Achieve this through outsourcing instead of taking on massive headcount. This is part of why number one is a harsh truth. And if you remember, number one was in-house manufacturing and fulfillment. Don't mix with D2C, because it's hard to have less than 10% fixed overhead and have all that operating leverage. But so like, as Jeff actually, your example was really great because it outlined the interplay between contribution margin before marketing, ad spend scale, right, and volume scale, and then really lean overhead. Again, if you don't have this structure, I'm not saying throw in the towel, because there are brands that We have seen grow successfully who don't have this exact structure but the structure we're laying out here actually I have seen in my experience allows you to be much more aggressive and really lean into ad spend and not have to worry about your MER being higher than three which a lot of brands need to and just needing a three MER Again, without the nuance of repeat purchase and the strategy on product and whatnot, just needing that, relying on that, automatically slows down scale because there's only so fast you can scale at that MER. So mind you, what we're talking about here is the formula that we've seen several brands put into play that has allowed them to scale up really fast and turn a meaningful profit in dollars.

Jeff Lowenstein: Yeah, it's interesting to think about and by the way, it's not for everyone. Just because you can scale fast doesn't mean you should. Scaling a little slower and more steadily while making a healthy profit along the way is a good strategy for many people, too. And then I'll also make a comment. I think on all four or five of the topics, there's one common thread, and that's keeping your overhead lean. As CFOs, that's something we are super passionate about. It just gives you so much more optionality. It gives you so much more. flexibility. You don't need a full-time CFO. You could hire a fractional CFO, for example, right? Using great consultants on the retail side, like we were talking about, rather than hiring the head of retail, for example, that's super expensive. Those types of things. Using offshore talent. you know, always important as well. So, you know, that's always a common thread. You don't pigeonhole yourself into needing a certain amount of sales to break even. If you're, if you're lean on the overhead, right, that break even point is going to be much lower. So, so you really have so much more flexibility.

Jon Blair: Yeah. I mean, we work with this one brand that is doing like several hundred million in revenue. Uh, well, I guess they, they might do close to 200 on, on, on. e-com only. Again, one of our, that is the exception, not the rule, right? But their margins before marketing are not fantastic, but their overhead is crazy lean for the revenue size that they're at. And they make all their profit. They make all their profit, in my opinion, because of how lean their overhead is. And you know, it's only You know, generally speaking, 10%, this is a general 10% tends to be like, kind of like a, a mark, like a, a good goal to have, like, that's a healthy profit. Anything above that is like above normal or above market and is really healthy. These guys are at seven to eight, but dude, with their revenue volume, they're making like 19 to $20 million a year in profits. So like, yeah, seven or 8% bottom line. But you're going to tell me you don't, you wouldn't want to have a business that makes $20 million a year, even if the margin is 8%. I think, I think you might be okay with that. And so the point, I think the major takeaway is in all of this. It's not just that there's a single winning formula, right? It's about how to understand the dynamics of variable costs, fixed costs, and acquisition costs, and understand how, depending on how those are structured for your brand, it does dictate to some degree how fast and profitably you can grow. And so when you think about When you think about setting your brand up for success, you don't just set random goals and see if you get there. You actually build out some intelligence of understanding how your variable costs, or how your acquisition costs, or how your fixed costs are drivers of said goals that you want to achieve and you start messing with the drivers so that you are you're messing with the thing that is causing the effect that you want right as opposed to just setting goals and hoping that you get there and this is a big thing This is where, amongst other things, this is a big source of real value from a CFO, especially a CFO that understands D2C like our team does, is that we really understand the drivers of the growth and profitability equation for a D2C brand specifically, because we're D2C specialists. And furthermore, how they impact your balance sheet, so how they impact your cash flow. And so we're actually able to help you manipulate or leverage the drivers, right? And that is how you run a great business, no matter what, no matter what your makeup is of margin, no matter what your makeup is of repeat purchase or fixed overhead, is that you understand what truly drives it, and you understand how, like, if you move a driver in this direction, it should impact the business in this direction. And a CFO can really help you connect those dots. It's what we do every day. Um, I mean, that's it. We got through it. I mean, that was an hour, man. That was a pretty legit conversation. I, that was actually, that was actually a lot of fun. I hope that it was helpful for everyone that's listening. Um, I mean, just to be 100% honest, this is just, uh, this is just us taking a little sliver out of, uh, what it looks like for Jeff and I to wake up every day and just. And just work together at free to grow. And it's usually on a screen cause our team is all, all remote. Right. And so, uh, these kinds of the con conversations are, are what we're having every single day with the 25 brands that, that we serve as, as DTC CFO. So, um, I hope it was super helpful. Um, Jeff, we're getting you back on here many more times this year. I want to see more and more of your face and your thoughts on these ideas because it's just fun to share what we're learning from our clients because working with all these brands, it's really like drinking out of a fire hose and it's a really unique perspective that I've never really had before on the D2C market. It's really kind of cool.

Jeff Lowenstein: Oh yeah. Let's do it. I'm excited to come back on. And there's some people that are going to hear this and say, damn, that's what you talk about every day. That sounds terrible. You guys are a bunch of nerds. I'm not into that. But then there's some DTC people out there, too, that are going to be like, OK, this is my jam. These are my people, right? Exactly. Exactly. It's truly what we love to nerd out about all the time. So I hope you guys enjoyed.

Jon Blair: Yeah, before we shut down here, don't forget, if you want more helpful tips on scaling a profit-focused D2C brand, consider following me, Jon Blair, or Jeff Lowenstein on LinkedIn. And if you're interested in learning more about how Free-to-Grow's D2C accountants and fractional CFOs can help your brand increase profit and cashflow as you scale, definitely check us out at freetogrowcfo.com. Until next time, scale on.

DTC War Stories: What COVID Taught Us About eComm

Episode Summary

In this episode of the Free to Grow CFO Podcast, Jon Blair is joined by Nate Littlewood, founder and fractional CFO at Future Ready, to share their e-commerce war stories, focusing on the challenges faced during the COVID-19 pandemic. They discuss the impact on their businesses, lessons learned, and strategies for navigating supply chain disruptions and financial challenges.

Episode Links

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

Nate Littlewood - https://www.linkedin.com/in/nathanlittlewood/

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

Future Ready - https://www.getfutureready.co/

Key Highlights:

• A deep dive into Guardian Bikes' pivot from brakes to premium bikes

• Importance of focusing on the long term in business decisions

• Managing supply chain disruptions and increased demand during the COVID-19 pandemic

• Financial modeling and strategic pivots for
  direct-to-consumer (DTC) brands
  

Meet Nate Littlewood

Nate Littlewood helps early stage founders navigate their toughest business decisions by providing insights and financial analysis catered to their individual needs. He is the founder of Future Ready, a fractional CFO business, as well as a Lead Mentor with the Food Future Co startup accelerator program. What really sets Nate apart from other fCFOs is his past operating experience as the founder of a 7-figure eComm brand of his own, plus his decade-long global career working on Wall St. 

Transcript

~~~

00:00:41 - Introduction and Background of Nate Littlewood

00:02:07 - Transition to Ecom War Stories

00:02:23 - Nate's Background and Journey to Starting Future Ready

00:07:35 - John's Background and Journey to Starting Guardian Bikes

00:08:13 - Guardian Bikes' Pivot Story

00:14:57 - Guardian Bikes' Experience During COVID

00:20:19 - Urban Leaf's Experience During COVID

00:25:22 - Lessons Learned from COVID Experiences

00:38:06 - Negotiating and Leveraging Relationships

00:43:37 - The Impact of Stocking Out vs Overstocking

00:46:08 - The Power of Differentiation

00:56:16 - The Fabled COVID Santa Story

01:01:39 - Final Thoughts

How Elite Profitable Brands Optimize Shipping & Fulfillment

Episode Summary

In this episode of The Free to Grow CFO Podcast, host Jon Blair sits down with Tony Runyan, Chief Client Officer at Red Stag Fulfillment, to discuss the intricacies of optimizing shipping and fulfillment costs to maximize profitability. Tony shares his unique journey into the logistics world and provides invaluable insights into how e-commerce brands can better manage their shipping strategies. From understanding dimensional weight to navigating peak surcharges, Tony breaks down the complexities of shipping in a way that's easy to understand. Tune in to learn how to turn shipping from a cost center into a competitive advantage.

Key Topics:

• Tony's background and path to Red Stag Fulfillment.

• Breakdown of shipping rates: actual vs. dimensional weight, zones, and surcharges.

• Practical tips for designing products with shipping efficiency in mind.

• Red Stag's origin story and its unique approach to solving e-commerce fulfillment challenges.

Episode Links

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

Tony Runyan - https://www.linkedin.com/in/tonyrunyan/

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

Red Stag Fulfillment - https://redstagfulfillment.com/

Meet Tony Runyan

Tony Runyan serves as the Chief Client Officer at Red Stag Fulfillment where he has been since 2017. Before working at Red Stag, Tony helped run a software company that primarily served major media brands including Disney, Fox Sports, and NBC Universal. Tony is married to his wife Read and they have three beautiful children: Jack, Ellie, and Silas. 

Transcript

~~~

[00:00:00] Welcome and Introduction to Tony Runyan

[00:02:23] Tony Runyan's background and journey to Red Stag Fulfillment

[00:06:52] The founding story of Red Stag Fulfillment

[00:10:16] Basics of how shipping rates work

[00:17:01] The impact of packaging on shipping costs

[00:23:57] Tips on carrier selection

[00:33:03] Strategic discount negotiation

[00:35:31] Self-fulfillment vs. using a 3PL

[00:43:39] Fulfillment network optimization

[00:53:46] Final Thoughts

[00:00:01] Jon Blair: Hey, hey, what's happening, everyone? Welcome back to another episode of the Free to Grow CFO Podcast, where we dive deep into conversations about scaling a DTC brand with what? A profit-focused mindset. That's right, we're always talking about profitability over here. I'm your host, Jon Blair, founder of Free to Grow CFO, the go-to outsource finance and accounting firm for eight and nine-figure DTC brands. Today, I'm super stoked to be here with my buddy Tony Runyan, Chief Client Officer at Red Stag Fulfillment. Tony, what's happening, man?

[00:00:32] Tony Runyan: How's it going? It's good to be here, Jon. Thanks for having me on.

[00:00:37] Jon Blair: Yeah, yeah. Tony and I go back several years. Guardian Bikes, our core fulfillment provider for quite a number of years, was Red Stag. So I've worked with Tony on that level, but have remained kind of friends and colleagues since then. So we actually chat once or twice a month. It's fun to actually finally bring some of those conversations onto the podcast, so I'm excited for everyone to be able to learn a little bit from you about what, what are we talking about today? Optimizing shipping and fulfillment costs to maximize profitability. And so here's the thing, why are we talking about this today? We're talking about this because obviously, in addition to cost of goods sold and marketing costs, which I feel like we talk a lot about those things on the show, the next biggest cost is fulfillment, right? As a physical goods brand, we're shipping everything, right, to clients. And in the D2C context, we're shipping direct to the consumer. We're not realizing really big economies of scale of palletizing shipments and shipping them to retailers, right? which is something that B2B focused brands really get to enjoy and D2C brands don't. And so understanding how shipping and fulfillment costs work and how to leverage the understanding of how these costs are structured is really important to remaining profitable as you continue to scale your D2C brand. Before we get into the nuts and bolts of shipping and fulfillment, I'd love to first just get a little high-level background from you on kind of your background and your journey to joining Red Stag Fulfillment.

[00:02:23] Tony Runyan: Yeah, absolutely. Happy to do that. So for me, the journey into the supply chain world or logistics and that sort of thing, I kind of took a curved path here. So I went to the MBA program at the University of Tennessee straight out of college, wasn't exactly sure what I wanted to do yet. So that was kind of my next step. And while I was there, became a consultant for a software startup that was really focused in the media company. So, or in the media industry, I should say. And so spent a lot of time, actually almost 10 years working with the software company, helping build a product that helped engage users around interactive events and that sort of thing and sponsorships. And that company actually merged with an agency. And at that point of I think for me, there was just a change in terms of I lost some of that entrepreneurial spirit in what I was doing on a daily basis and was kind of looking for that next thing, trying to figure out how to scratch that in. So I'd actually reached out to Jordan Mollenhour, who was one of the founders of Red Stag Fulfillment. He was in the MBA program just a couple of years before me. And really just to have coffee and talk to him. And so those conversations kind of led him to walk me through Red Stag in the early days. I think at the time they had been in business about two years and it was really you know, very early on. And they've gotten to this point where they were going to start to scale the company. And we're looking for someone to really lead the engagement with existing clients to ensure that we're nurturing those relationships, understanding what those clients needed and that sort of thing. So that was just over seven years ago that I got involved with Red Stag. Didn't really know a whole lot about this world or anything about shipping or shipping parcel or anything. And I still remember Jordan told me, Hey, let me walk, walk you through this startup. I think it'd be something really exciting for you. And I walked through the warehouse for the first time and I saw all the product on the racking, and I saw the racking and the equipment. And my thought was like, this isn't a startup. Look at all these assets, you know? And I came from the software world, so it was literally like four or five guys in a room and some Amazon server somewhere, and that was all we had. So to see all of this, I was kind of thinking, oh, this is a lot more established than I realized. And then a few weeks into starting at Red Stag, I was like, yeah, this is definitely a startup, just in its own way. So it's been a blast to kind of ride this wave, you know, the last seven years. And lots happened, you know, COVID in itself was years of learning, so.

[00:05:16] Jon Blair: Yeah. I mean, I've, I've said it on other episodes. Um, cause it's the truth when I was, um, running guardian bikes in the middle of COVID alongside red stack. Cause you guys were our fulfillment provider at that time. I, everyone was so burned out. My whole leadership team, my whole like frontline management team, they were so burned out, especially anyone who was like, had anything to do with supply chain, because it was just like every day. Costs were changing. Transit times were changing. Will it show up? Will it not show up? Will the truck pick it up? You never knew, right? And I used to sit down with my leadership team and one of the things that I used to kind of use to rally the troops is like, guys, this is not going to go on forever. and you're getting a PhD in supply chain management. You will run circles around anyone who didn't have to go through COVID in the supply chain world. And I know it's exhausting, but you're going to come out of this having learned so much. One thing I want to ask you about RedStag actually that's interesting. This is one thing that really piqued my interest when I was searching for 3PLs because we were using a different 3PL originally that's big in the bike space at Guardian and we just weren't quite getting the service that we wanted. And so I was actually the one that went around and kind of shopped the market. And one thing that was really intriguing about RedStag was really how it was born. It was born out of like the actual frustration that the founders had trying to run an e-commerce brand. Can you just tell me a little bit about that? Because I think it's an interesting story.

[00:06:52] Tony Runyan: Absolutely. So the co-founders, Jordan and Dustin, had an e-com business that they were running and they really started to scale quickly. So they were originally fulfilling for themselves like a lot of e-com companies do in that the growth was so quick, they thought, hey, we've got to figure out how to work with the volatility of demand. We don't really want to focus on this whole fulfillment thing was kind of the thought, of course. So they started to begin that journey of finding a partner who could help scale with them. And I think, you know, They went through a few partners and there were, you know, one partner they used that did a pretty good job. They just couldn't scale quickly enough. They just weren't big enough. And then went more of like the national route search and went through, you know, kind of an interview process with a lot of different 3PLs and eventually landed on one, selected it. And what they found was, you know, kind of what they thought they were supposed to be and what they said they were going to be didn't turn out to be, you know, what actually happened. And there was a Christmas one year when one of the co-founders called the president of the 3PL and just said, look, I'm going to be down there, you know, tomorrow to help fulfill these orders. Like, I hope your team will join me because we are weeks behind trying to get these orders out. And he showed up there. And what he noticed when he was there is this is not something that can be fixed. by me coming down here. It's a cultural issue where they saw that the break rooms were in terrible shape and they were a mess and you didn't even want to go into the bathrooms. And this whole idea that the way that these employees were treated really directly impacted how those employees treated the job that they did. So that was a big, I guess, catalyst for why they said, hey, we're going to have to do this ourselves. And the other pieces were some of those big pain points, which are, number one, we want the order to ship on time, right? We wanted to ship accurately. So, hey, put the right thing in the right box. It doesn't matter if you, you know, you ship it out on time if it's the wrong item. And then the other was the inventory accuracy. Things like shrinkage really hurt them. And the thought that someone was allowed to lose or damage a certain amount of inventory with no consequence was just bizarre. You know, how is that okay? So, for sure, those are really the things that they kind of built RedStag on.

[00:09:24] Jon Blair: Those were the things I was experiencing at the other 3PL that I was leaving at the time. And so when I came across those guarantees, those service delivery guarantees, I was sold because I was experiencing that left and right. And when you're operating a D2C brand, I mean, I think this goes with any kind of brand, but D2C specifically, There's still like, you know, part of the D2C experience that you promise, right, as a brand is it's a better experience than going to a store, right? And if it's not a better experience than going to a store because you get stuff late or you get the wrong stuff in the box, then what is the consumer thinking? The consumer's like, man, I should have just gone to the store for that, right? And so it's really important that you nail that. It's incredibly important. It's one of the things that differentiates DTC from an in-store experience. And so, um, so look, I want to now chat about like. how do shipping rates actually work, right? There's all of this, there's all this jargon, there's base rates, there's fuel surcharges, there's peak surcharges, there's zones, like, what does it all mean, right? Like, what is it, Austin Powers, Basil, what does it all mean? Like, it just, bringing it back on that one. You know, when, when, if, if, when someone comes to you and it's like, Tony, I just think there's so much, I, I don't understand it all. How do you break down just the basics of how shipping rates actually work?

[00:10:55] Tony Runyan: Yeah, happy to do that. And what I'll say, it's parcel shipping. It's one of those things where the more I learn about it, the more I realize I don't know. You know, doing this seven years, and I think I've got all the nuances down only to like discover something new, you know, that impacts things. So I think carriers do a good job at keeping you on your toes. And it's a complicated thing. But that being said, there are some basics that can really help you get your head wrapped around it pretty quickly. For the most part, carriers do try to align cost with their labor and the effort required for them to deliver a package. So if you keep that in mind, most of the time it makes common sense when you walk through things. So really what you want to know is the size of the package, which includes the dimensions and the weight, and how far it is being shipped are the two primary things that impact the cost for shipping. So, I'll kind of break that down a little bit more because it's easy to do that. But the one thing you want to look at is what is the build weight of a package? And that is, there's the actual weight. Hey, this thing weighs 20 pounds. And then there's the dimensional weight. And that's a lot of things. It's been around a long time, but even now that some people get caught off guard about, which is, If you ship a feather in a box that's really big, historically, carriers would charge you for the weight of that feather, right? And they realize, wait a minute, this doesn't make sense. It takes up a lot of room on my truck. It takes a lot of room in the warehouse. So what they did is they created this, what they call a DIMM divisor. And so that, for example, for UPS and FedEx, it's length times width times height divided by 139, which is the dimensional divisor. And what they do is say, okay, we'll take that weight, and we call that the dimensional weight, and we'll take the actual weight, and whichever one is bigger, that's the one we're going to charge for. So that's kind of the first thing to understand. And because now all of a sudden your mind starts going through, oh, like, The size of the package matters. There's things we can do to adjust packaging to help us there if we're getting billed dimensional weight instead of actual. And then the next is the distance, right? If I'm shipping from Florida to California, that's a long way to go. And so the carriers do this by what they call zones, which most of the time is really determined by how many miles away is the destination from the origin. So, you know, I think you look at like 150 miles away is zone 2, you know, up to 300 miles away is a zone 3, and it goes all the way up and domestically is typically a zone 8 is the way that that works. Those are the two biggest determinants, but then what you can get into with larger packages are these other surcharges and even not just the size, but things you hear about residential surcharge. Is it going to a residence? Okay, there's more on top of that. Is it way out in the boonies, right? And then that's going to be a delivery area surcharge or an extended area surcharge. There's obviously a fuel surcharge that's on top of all of that. And then you get into what we call these additional surcharges, which are going to be things like, hey, if it's over 48 inches and it's longest side, then it's going to get hit with a surcharge. If it's greater than 30 inches on its second longest side, it's going to get hit with something. If it's more than 50 pounds, there's a surcharge for that. So there are a variety of surcharges based on the size as well. And then there's two other things I'll hit on that kind of make up what I'll consider the basics, which is First is what's called a reduction to minimum or a minimum fee. So all carriers will charge a minimum fee for a package, and this is when you're considering lighter weight packages more than anything, where There's a certain, it doesn't matter how high your discounts are, there's a certain minimum or a certain floor that a carrier is going to charge you for a package. And that is called the minimum. So you've got to keep that in mind. And then lastly, to your point, these peak surcharges are demand surcharges. And It's kind of interesting. So peak surcharges are things that carriers decided to add several years ago during the peak, during the holiday season. Because they're like, hey, we've got all this extra work, all these extra packages. We're going to add these surcharges on top to help us cover our costs to make sure we can deliver your package on time. Yeah, that makes sense. So they started doing that each year, and then came COVID.

[00:15:55] Jon Blair: But then they still tell you that, like, oh, we can't guarantee that this gets there on time. Oh, yeah. Because of demand. Exactly. Don't get a refund on that charge, though.

[00:15:57] Tony Runyan: That's right. There's definitely that window of time that doesn't matter how much they add to it. You're not going to get guaranteed. You move past that and we hit COVID, and now all of a sudden it was, hey, this whole time's peak. All during COVID, this is volumes like we've never seen. Again, something that makes sense. All this increased volume, they're trying to figure out how to handle it. So what they did is they extended the peak surcharges beyond peak to help continue to cover for those costs within their network. What we have found, of course, is that because it was outside of peak, a lot of folks were like, hey, when does this peak surcharge go away? So what do they do? They change the name from peak to demand surcharge. So now whenever there's demand or high demand, right, we're going to charge it. Where that doesn't really make sense or it starts to kind of break down is the fact that what we're seeing right now in the industry is there's a lot of capacity available. Guess what? There's still a demand surcharge. So even now there's demand surcharge available and what we see is You know, the carriers, FedEx actually originally pulled back those fees and a lot smaller. And then UPS announced in February that they were going to keep theirs at a certain higher rate. And what do you know, two weeks later, FedEx's went back up.

[00:17:20] Jon Blair: So it's always, it's always like a tit for tat with those two, with those two carriers. Like it's, I mean, I mean, penny for penny, not even dollar for dollar, like penny for penny. Okay, so there's a lot to unpack there. One thing that I want to call out is this concept of being intentional and being proactive when you're developing products, when you're actually designing products, right? Because there's a couple things that go into that. Part of a sound product development process is doing unit economic analysis. Unit economic meaning like what is the per unit cost of the product you're developing? And that's not just cost of goods sold, not just landed cost of goods sold. What is the per unit economic cost of shipping and fulfillment? And when we're at Guardian, when I was at Guardian Bikes, this is where I learned about how all this stuff works. looking at our unit economics for each of our SKUs, we were pouring over like, man, how can we pull half an inch out of this dimension, right, on this particular bike and get us below the threshold for that extra dimensional charge, right? And so, but we're going back to the drawing board and going like, okay, where do we put the wheel? Where do we put the, you know, where do we put the front tire? Where do we put the, How do we hang the handlebar? What if we did this? What if we did that? And the reason why we spend so much time doing that was because, you know, if you extrapolate the savings, let's say that the, you know, I mean at retail rates back then, at least the additional handling surcharge for dimensional was like

[00:19:08] Jon Blair: 14 to $16 a unit, right? If you, if you pull back your packaging on whatever dimension is triggering that and you get below that, $14 to $16 a unit is a massive savings. Extrapolate that across all your volume. It's huge, right? And so what I want to call out is that there is a lot of strategy and intentionality around designing the product such that it drives packaging that drives optimal shipping and fulfillment. And the problem is, If you are not intentional about that and you bring that product to market and then you find out about that dimensional surcharge after the fact, man, it's hard to go backwards, right? Cause you've got tooling out for packaging. You've got, um, I mean, even the number of times that we changed packaging at guardian, we had to go like, Hey, well, we've got the stock that we've got to completely deplete of the old packaging. And then we've got to make sure the factory changes to the new packaging. It is a huge effort to switch packaging. Now, if you've already got products that you've brought to market, I'm not saying don't work on your packaging. Most certainly do that, but the best time to do it is up front when you're designing and developing the product. I highly recommend get your 3PL or shipping expert to actually review your packaging. We used to send stuff to you guys at Red Stag when we were designing new products and go, hey guys, can you give us an estimate on the shipping cost and is there anything we're not thinking about? That's actually how we learned a lot of this stuff was from you guys giving us advice and like, ah, well man, I know you guys want to launch that 26 inch bike, but if you have that length dimension, Man, this is gonna be a really expensive bike to ship, so make sure you're proactive, make sure you bring your 3PL or shipping expert in on the front end. I think the other thing is, you brought up these minimum fees for each carrier, no matter how light or small the package is. In my experience, that is part of what drives that carrier selection strategy, right? Because, you know, there's certain minimums on FedEx and UPS that are higher than some other carriers. How, from your perspective, what are some tips on like considering the minimum fee across carriers, how that should drive potential different carriers that you might want to select for certain kinds of products?

[00:21:28] Tony Runyan: Yes. All great points. And first off, let me say to your point, we have seen what you mentioned so many times where we get containers of product only to find that there's a new fee that's going to get hit that was not considered. Right. And that will just destroy your unit economics. And an important part of that piece is if those additional handling surcharges. Also, you won't get hit with more than one on a package, but it's very important to know if it's over 50 pounds and greater than 48 inches, which one is it going to get hit with? For sure. Because you might design to hit to avoid one, but then you get hit with another. And another is if it's got straps on it, right? Say you designed it smaller and more compact. Hey, we're going to put these straps on here. So that'll take care of it. And you realize, hey, you eliminated those. But there's this fee called the additional handling packaging fee to where now that fee gets added.

[00:22:38] Jon Blair: We made that mistake at Guardian. I don't know if you remember that. I do, yeah. At one point, I believe the factory told us This is the other thing, the factory recommended we added the straps, and it had something to do with, it had something to do with pallet, or I mean, container loading, right? And a few other things. And so we listened to them. And then those got to you guys. And then we fulfilled those units. And we got tagged with that fee. And then all of a sudden, we're calling the factory and saying, get those straps off of there. Because like, Like whatever they charge us an additional fee to like load the container was cheaper than what FedEx was charging us for those straps. So, you know, I mean, some of it's live and learn. There's a lot to cover and there's a lot to know. Right. And so I'm not suggesting that any of you brands out there like. understand all of this to the T. I'm saying, make sure you have someone in your court and hopefully a 3PL who can really help you navigate these things. And like, they would be happy to review your packaging ahead of time because quite frankly, the 3PL doesn't want you to be upset. They want you to have great unit economics so that you can scale. And so both of your businesses can grow. Right. Um, so anyways, I know we kind of like went off a tangent, but carrier selection, what are some tips you have on like thinking through which carriers are better for, for different situations?

[00:23:57] Tony Runyan: Yeah, I mean, there's so many things to take into account. And I mean, you know, you can kind of go like this, this cheapest all route if you if you want, depending upon what your clients or your customers look for, right? Like if you have a customer who's very sensitive to transit times, that might change who you consider. But what I would say is we typically find, you know, FedEx and UPS For packages, if you're talking about a very lightweight package, there are so many, there's the minimum fee, then there's the residential fee, then there's the fuel surcharge, and all that stuff kind of stacks and adds on. Now, what they've done is they've began offering these economic type services like a SurePost, a SmartPost, some that use USPS and some that don't, but the key there is they use USPS, and the reason is, USPS isn't charging a residential delivery fee. So, the cost that you get there is all in. It's that fee plus fuel. So, what we do is we look at USPS, we look at Pitney Bowes or DHL, and then also some regional carriers even. who may be in a situation to negotiate even a little bit more. And so that kind of goes to the next point, which is having a 3PL that can help you dive into specific discounts can really be beneficial as well. Let's say that you just cannot uh, get your packaging down, you know, and it's still be quality to not hit an additional handling surcharge. Well, that's where it can really be beneficial to work with a partner to say, Hey, I've got to pay it. Uh, maybe I can get some sort of discount off of publish, which, uh, of course anybody can, can go and ask for it, but having volume, um, within a particular area makes that a lot more attractive for a carrier to discount it. And then that can be passed through to a brand as well. But to your point, we certainly look at typically for lighter weight packages, we kind of have certain shipping methods that we look at in certain carriers. And then as they get larger, of course, I mean, there are some carriers that won't even accept packages that are longer than 48 inches, right? Or that are more than 50 pounds, at which point it kind of narrows the scope of what you can consider.

[00:26:13] Jon Blair: Man, we're going to have to have you back on another time because I'm just looking at how much time we have left and like, you know, we're not going to get to everything in the next 25 minutes, but that's OK. So so there's a couple of things there that I want to that I want to dive into. Let's first go with like what I have learned over the years. And I think what we've talked about at this point is a good backdrop for the audience to understand this. What I've learned over the years is that like If you start thinking about if you want to start a brand or you're thinking about the next products that you want to bring to market for your brand, the holy grail is small and or light, higher price point, right? Heavy and or big, lower to medium price point. gets really hard. Why? Because shipping rates are driven by weight and size, right? And so if you have a low value product that is heavy and big, it's going to be really hard. It's actually one of the reasons why Beverage is really tough D2 C in my opinion because beverages are heavier. When you think about their weight compared to their size, they're heavy and they're low value. You're not selling a $100 beverage. The reason why things worked for us at Guardian bikes are heavy and big, but we had a high price point, right? It's hard, but we have a premium bike. We had a really high quality bike, safest kid's bike, direct to your door, can't flip over the handlebars because of our patented brake system. It's hard for mass market bike brands like Schwinn and Huffy, big and heavy, low price point. It's really hard for them to go D2C. That's an important takeaway for everyone listening to understand. If you're going to have a heavy, low price point product, B2B going through retail is probably your way to profitability because you can get economies of scale on shipping and fulfillment by either palletizing or even better, a lot of brands at the beginning, they use the actual retailer's shipping rates at the beginning and they just pass those through to you. And then it's a volume play because the retailer can order a lot of volume at once. This is a really important takeaway. There's a lot of brands who've made mistakes. And earlier in my career, I was naive and didn't understand this. A lot of brands who've made mistakes and not thought about this. And so, super important. Another thing is the strategic discounts, I'll call it. This plays into another question that I was thinking about when we were preparing. Not all 3PLs are made equal. I have my own opinions as to why they're not all made equal, but definitely one area is strategic discounts. Where is that 3PL focusing on negotiating their discounts? Before I ask this next question, I want to just set the stage for the audience. Here's the thing. Every brand that reaches scale, whether they self-fulfill or use a 3PL, part of their economies of scale and their improving profitability is 1000% through negotiating discounts with carriers. Every elite brand does that, right? Just getting a blanket discount across the board is a bad strategy unless you have products that are all across the board in terms of size and weight, right? But being very strategic on negotiating the right discounts is really important. And it's also important when you're going to choose a 3PL is understanding what has been their strategy for discount negotiation and where are their discounts concentrated? What kind of like advice or tips do you have about that subject, Tony?

[00:30:05] Tony Runyan: Yeah, no, I think it's a great point and one that we talk about frequently at RedStag because for us, when we started, our founders started, the product that they were shipping was heavier and more dense. So really, we kind of naturally started with carriers talking through, hey, what can you do for these heavier packages or larger packages? And what we found very quickly is like that is not the majority of the e-com space, right? When you think about an Amazon box or, you know, what, what is the, in terms of velocity of volume, it's 10 pound or less packages, right? Is what you see a lot of. So as a result of that, the majority of the 3PLs and partners that you see out there are going to have been negotiating a lot. a lot more aggressively on those lighter weight packages. And this is kind of, I'm not going to say it's a race to the bottom, but in reality, when you get down to where you're paying the minimum, right, for a service, you can negotiate even what's called the reduction to minimum. Like, hey, how much is a carrier willing to reduce that minimum amount to you for? You're still, you're working with nickels and dimes, right? Not dollars. And so what we have found is like a 3PL who says they do it all. It's probably not a very. accurate picture, or if they do, their rates are not going to be super aggressive across the board. They're going to have more, like you said, more of a flat rate across versus, hey, we've really focused on this area. So for RedStag, as we've grown, you know, we have definitely been originally in this heavier space. And then as what we found is naturally with heavier items came bulkier items. So this is where you hit the AHS or the oversized products. But just like with bicycles, you're going to have helmets, bells, pedals, accessories. So what we have found is that's where using alternate carriers can have an impact because I may go with, you know, one carrier and really negotiate oversize fees. And from there, we're able to filter and flow that oversize product through that carrier. But we want to be aggressive enough in the lightweight space to where you're able to ship an accessory or whatever the case. And I might use a different approach with a different carrier and target that. So then they win, the carrier wins that volume, this carrier wins that volume, and we both win in terms of the discounts. So there's definitely something to having a multi-carrier strategy in that piece as well, and not necessarily going, hey, This carrier gave me this. Can you match it? Hey, this carrier gave me this. Can you match it? Because at that point, you kind of get you do get into that race to the bottom. And at some point, they're gonna say, Where's this volume?

[00:33:03] Jon Blair: Yeah, for sure. I know that they'll give you a chance or two. And when you don't hit it, that's really hard to get back in their graces. Like I mean, you You lose your reputation and you lose your leverage with them. And there's only so many stories you can tell them about why the volume didn't come. So I totally agree with that strategy. I've come across a lot of 3PLs who who basically pitched that they are everything to everyone with those mass discounts across the board. And I'm always super skeptical because I know how it works. And I haven't really seen any carriers really be successful with that, quite frankly, or I mean, sorry, any three peels really be successful with that. Yeah. I mean, one other thing I want to mention, like this may go without saying for the people that listen to this podcast, but like One of the advantages to using a 3PL, especially in the early days, but this is going to actually segue into another question that I have for you, Tony, is like, you don't have the volume to negotiate really incredible rates, right? Like, but a 3PL does because they are able to consolidate the volume of a ton of different brands, right? And so they're able to, as a service, pass down a discount and a shipping rate you could never get on your own and still make a margin because 3Peels are in business as well, right? They got to make a margin. They can mark up their rate and you get a better rate, they make a margin, everybody wins, right? But there is obviously, and I know you deal with this all the time, Tony, there's obviously this allure of beginning to fulfill yourself at some point when you reach a certain volume because you're like, basically the theory, the general theory is I can cut out the middleman, which is the 3PL, right, and cut out their markup and their margin, and I can go get the, quote, negotiated wholesale rate myself, And yeah, I'm going to have to run a warehouse, but the savings that I'm going to get by cutting out the 3PL on the rates is going to more than offset the impact of start the fixed costs of operating a warehouse, right? Rent, the people, the equipment, all that kind of stuff. What are your thoughts or opinions on if and when self-fulfilling actually does become better for a brand? And what are your thoughts on how far can a brand really run with a 3PL?

[00:35:31] Tony Runyan: Yeah, that's again a great question. And one of those that's like, I'll give my standard answer and then also leave the the idea that it can be different for every brand, right? In a lot of ways. But like, I think what we see is really there tends to be, uh, like at the beginning phase of, uh, of an econ business, it may make sense to fulfill for yourself right at the beginning. Right. And while we say that is there could be, you're figuring out the packaging, you're trying to figure out what is it going to cost? Like if I ship these different sorts of boxes and you kind of get that understanding, you're able to do some very special, uh, individual touch and customizations to products, maybe when you're trying to build your customer base and get loyalty and create these experiences and that sort of thing. So I think like at the beginning, when your order is small, maybe low volatility and you want that customization, it makes sense. You might have to pay a little bit more on the shipping side as you kind of learn that. And then you kind of hit this point where, okay, now a 3PL makes sense, right? And I think our founders saw that same thing in their business. So as you do that, there are certain things you give up. For example, having someone walk out on the floor and, hey, these people order these three things and the system says to ship them separately, but I bet I can open this box and put something inside of that box. Well, some of that stuff can be programmed, but some of it, it's like, You don't have the expertise when you've got 300, 500, whoever, employees who are shipping for hundreds of different brands, right? So you kind of keep in mind, okay, there's going to be these experiences, which is why it might be even more important to tailor that stuff before it gets to the warehouse, right? As well as maybe you can do some special projects like kidding or something to do that stuff on the front end. And then to your point, That allows you to take advantage of the economies of scale of that 3PL, the shipping, but also it's on them to figure out the warehouse leases, the labor, handle the spikes in volume, and that sort of thing. And for sure, what we see is like this curve and there's like this sweet spot, right, where it works really great. And then, I mean, there's obviously a point at which you outgrow a 3PL. And I think depending upon the product category, like what you're doing within your industry and that sort of thing, those things can vary. But what I would say is, what you have to consider is, to your point, can you optimize for labor costs? Can you optimize for inbound and outbound costs? Like, can you optimize for transit times? Do you have someone who's an expert in real estate? Do you have in-house ops expertise? Do you have the capital? That's the other thing. You know, capital intense, it's a capital intensive business. If you need

[00:36:03] Tony Runyan: racking and you need to buy a pit equipment and you know, some of these other things that you've got to fund, can you do that and also buy enough inventory to keep your stuff in stock? Right. So there's going to be a capital aspect of that as well. And then just the matter of, do you want to deal with it? It's a headache. Like we know because we deal with it every day to deal with it. And it may be that you're big enough, you know, and that makes sense, but definitely an investment there. And a lot of factors go into it, but you're going to have to hit a certain velocity before it makes sense.

[00:39:09] Jon Blair: Yeah, and you know what, like, I mean, obviously, as a fractional CFO for D2C brands, like we see most brands use a 3PL, but we have a few that that self-fulfill and we get asked this question all the time. And I think of it the same way about as I do about in-house manufacturing, which is that it can represent a huge economies of scale and margin and profitability improvement. but you have to have volume. It's a volume play. Economies of scale, by definition, means like, you know, basically unit economic improvements that you get because of scale, right? And what I see, a mistake I see brands make is do it too early, is try to bring fulfillment and even manufacturing in-house too early. And generally, this is not a perfect answer it because there's a lot of nuance like Tony said as it relates to product category in each brand but like if you're not on your way to like 50 plus million in revenue and like probably like really setting yourself up to be a nine-figure brand it may not make sense to take over fulfillment. It doesn't mean that there isn't a place to take over fulfillment and it actually make profitability sense before 50 million, but generally speaking, you need to be doing at least that much revenue to really, really squeeze out the the value that you want out of it. And why? It's because there's a lot of fixed overhead or what is called operating leverage that you bring on to the business. And what operating leverage and high fixed costs do is it makes it harder to break even. You have to do more revenue to break even. That's the downside. The upside is once you pass your break even point, if you have excess capacity in those fixed costs, you start turning a massive profit after that. But if you keep growing, like Tony was saying, you are going to have to be able to source the next round of fixed overhead, which is labor resources, possibly bigger real estate, more equipment. And so you're kind of playing this stair step game where like, you know, you're not really that profitable because you brought on all these people. leases, equipment, and then you start scaling, and then you start turning a huge profit, but you keep growing, and you're like, man, I gotta get the next round of people, real estate, equipment, and you become very little, there's very little profit, but then you keep growing, and you start squeezing a ton of profit out of those assets, and so it's like, it's just a question, it's a different game. It's not a bad game or a good game, it's a different game, and so I always tell brands, like, listen, What are your goals? If you have goals and it looks like you can hit 100 million, yeah, at some point you're gonna need to bring this stuff in house, but be careful about doing it too early. And definitely make sure that you bring on some sort of a VP or leader who knows this stuff really well, who can put the systems, the processes, and recruit the people, because it is a whole, I know when Guardian went to self-fulfilling, which in my opinion, It made a lot of sense for Guardian once they hit a certain point, not just from a volume standpoint, but they had to bring manufacturing back to the U.S. for their brand. This is like they had to as a part of their strategy. And so it's hard to do your own manufacturing. and not impossible but but it's hard to do your own manufacturing and not also do the fulfillment if you're already going to acquire the real estate and bring all those people on board and put the systems in place right but um yeah but it is a huge effort it was a lot of work on guardian bikes to figure that out and they're still working on it every day and the company went from like 30 people to like There's like a hundred people at guardian bikes now. Right. And so it's, it's, it's just a different business and you've got to be ready to get into that different business, you know?

[00:43:04] Tony Runyan: And I don't want to leave out, there is the hybrid type, too, that we've seen, where someone has a 20,000-square-foot facility on their own. Maybe they're managing, but then they outsource that volume as well. And sometimes that can be a location-based benefit, where it's like they're on the East Coast and they can use a 3PL on the West Coast or vice versa, but it's also that partner can help handle some of the volatility and the spikes or even their growth into it while they're able to control some of the other parts of the experience in their own space.

[00:43:49] Jon Blair: Well, that was the perfect segue, I must say into fulfillment network optimization, which is the next thing I wanted to talk about. So, um, and yes, you're right. Like, like fulfillment, when you're talking about, uh, you know, optimizing your fulfillment network, meaning. Where are your fulfillment centers located and, and what, and I would say alongside that, what routes, what inbound freight routes are you taking? to get to that network. So it's not just, it's inbound plus outbound optimization, right? There definitely is a place for 3PL to aid in that, even if you have stuff in source. But let's just talk about the situation where you're using a 3PL exclusively, which is most of the brands that we work with. Fulfillment network optimization is a huge opportunity to improve profitability over time. But again, from my vantage point as a D2C focused fractional CFO, I see a lot of brands get too excited too early about this. It comes with As with basically everything else in the economy scale in fulfillment, there are huge opportunities, but if you do them wrong or if you execute them at the wrong time before you have enough volume, it can cause a lot of problems. So like what are the high level do's and don'ts or common mistakes that you kind of see out there when it comes to brands wanting to optimize into multiple FCs?

[00:45:10] Tony Runyan: Yeah, so the initial point is right there that you made, which is a lot of times there's like this excitement of, ooh, like seven locations, let's go, right? Yeah. And inventory management's hard. And it does it, especially if your product is coming from overseas where there's a huge lead time, right? That's a biggie. But even if it's coming domestically, making sure you have enough product in all the locations can be a huge beast to manage. And if you start, and for us, and this is what I'm more familiar with too, is if your products are more expensive, if they're larger, if they're bulkier and that sort of thing, then you also have to balance that with like, my inventory carrying costs. Now I need more of this expensive item to have somewhere and it costs even more if I stock out to ship it from the wrong location. So you definitely don't want to outpace your in-house expertise to manage the inventory. So that's that's one piece of it. And the other is is like what are your clients?But a couple things number one what what's the customer expectation right depending upon what you ship like if you're if you're shipping a cat fountain right or you're shipping socks or or it's something that's like a a medical-related thing that somebody needs, like if they're sick, they order it then, right? Okay, so the expectation there for the customer is going to be different, even though there's this overall two-day expectation built by Amazon, right? I think even with that, there's still this understanding with consumers' expectations, and COVID helped with this, where it's like, look, I get it. I ordered a bike, I ordered a chair, whatever it is. it takes three days to get there, that's not that big a deal. It's not like I needed it, right? And if I did, then there's this expedited shipping method that I can choose to get it there. So that's one thing to keep in mind is like, what is your customer expectation? Also, where is your customer? So like, we think about the product that you ship, and it's like, if you're shipping paddle boards, or if you're shipping something that's like used mostly in the wintertime in the Northeast, right? Or whatever it may be, The locations you choose could be different, right? It's not that important to have it maybe in some of these other areas. So you don't want to just do it because the overall U.S. distribution makes it look like it's the best place. You want to look at your specific customer data and say, oh, based on these things, it looks like these would be the best locations for us to ship. And the other thing is what we find, some e-com owners fall into is this idea of like, oh, having a warehouse at port. That's the way to go. And in some instances, it absolutely may be right. But think about like a California warehouse which may come with additional taxes, additional expenses, and that sort of thing. But you say, hey, I'm coming in from China to California. It's great. I can just get it sent straight over to this warehouse. I don't have to pay this fee. But what we like to look at is what we call the total cost of fulfillment. Because if you're looking at a container that comes in, and let's just say that it's got 500 items on it, and it costs you $1,000 more. to go from California to a state that's further inland, right? And so like on average, you're paying $2 more per unit to get it there. But what you find is because of your distribution of customers, you're able to save $2.50 on outbound costs, right? Whenever you ship it out. So now all of a sudden it's actually $0.50 cheaper to ship it inland. That's not always true, but it's something to look at. And a lot of times we have customers who might just look at one or the other instead of considering the entire picture. So those are a few of the things we see. 

[00:49:11] Jon Blair: Well, yeah. So I mean, really, when you're looking at fulfillment network optimization scenarios or potential decisions, what you should be looking for is the net cost impact of carrying costs, inbound freight, any freight transfers, and outbound. You can't just like, usually, usually, I mean, I think I would say actually always, in all the times I've ever analyzed this, whatever outbound savings you're gonna get by moving into multiple locations, you're always looking at that as kind of like, that's the gross benefit, and does that outweigh the cost of Carrying cost increases because you're going to have more minimum inventory levels you have to hold. Probably some inbound changes and you're going to have to forecast some amount of transfers or suboptimal shipments. It's the net of all of those things that really help you understand your profitability impact. One other thing I want to mention There's like this whole world of supply chain network optimization. You can hire really expensive consultants. They run all these fancy models. I'm not saying there's no value to those. We got lucky that we had Mr. Shane Strange on our team, who you know, and who was, it was a supply chain network optimization consultant before I brought him on board. And so most people don't get that. Those are all pictures of an ideal world, right? And we don't live in an ideal world. And so there is no such thing as optimal. It's closer to optimal, right? And it's the same thing when we build financial models for clients, like our financial model, when you look at the P&L projection, the balance sheet projection, cash flow projection, it's not meant to give you a perfect prediction of the future, right? It's meant to say if these variables turn out to be true. Here's what the output is going to look like. And we're always having to make some sort of, uh, we're gonna have to make some sort of judgmental, like adjustments to those models to account for the fact that we live in reality, not in an ideal world. So I just, I want to take that pressure off of founders. Like it's not a, you'll never be optimal. And as soon as you're optimal, your demand locations will change, something changes and you're gonna have to change again. So it's very much iterative. It's like, what's the best we can do today? And then let's analyze it on some regular basis. At Guardian, we used to analyze it quarterly, depends on the volume. and the volatility in your space, maybe annually is fine. It's more about revisiting it and just saying like, what incremental impact can we make? And if you keep making incremental impacts over time, you will find yourself getting economies of scale. And one other thing I wanna mention here too is just that like, going back to the, this is just kind of sum up a bunch of different things that we've been talking about into a single statement. When you're going out there and you're looking at four or three PL, It's not just about discounts, it's about where are the discounts, what are the service levels of the 3PL, and where are their locations. It's all of those things, right? And certainly there's other factors, but it's not just one dimensionally. This 3PL has a 69% discount, and this one has a 45% discount. You have to take into account, we actually went from a 3PL that had steeper discounts and moved to RedStag, which did not quite have as much steeper discounts, but we calculated the service level, the cost of products going out not on time and the wrong stuff being shipped, more than offset the fact that RedStag's discounts weren't quite as aggressive. And that's okay. It's the total cost of the relationship, right? That if there's one thing for everyone to like take away from today's episode, whether we're talking about how shipping rates work, talking about fulfillment network optimization, you're talking about, um, outsourced choosing a 3PL, it's the total net cost. Right. Um, of all of those things that you need to take into account. And so, um, I just want everyone to take that away from today's episode. Before we land the plane though, I always like to ask a personal question because at Free to Grow, the balance of personal and professional life is near and dear to my heart and it's a big part of our core values and guiding principles. You and I both share on the personal front, you know, as brothers in Christ, we're both Christians. We talk a lot about our faith and just how it shapes our personal life and our work life. And I just want to ask you for yourself, as a Christian, how has your faith shaped your personal and work life?

[00:53:59] Tony Runyan: Yeah, I mean, gosh, the short answer to that is in every way, right? And I think that, so for me, having the ability to have an impact that is eternal or overreaching and far beyond just what I do day-to-day in my life. If I can use my relationships that I build, whether that be at Red Stagger with our clients or in whatever whatever I'm doing as part of this to establish a longer standing relationship, to be able to share others the love of Christ and the kindness that we are shown as Christians with that. One incredible thing to do. And it's really easy, I think, to get caught up in the minutiae of day to day and what, you know, our jobs, right? And then to not be able to step back and look at, hey, it's about a lot more than that. So, you know, it's great to be able to have conversations with you and to check in, you know, regularly to help make sure we're keeping our eyes on that and focused on that when we have everything else going on around us.

[00:55:09] Jon Blair: Yeah, man. Hardest thing to do, but what a great joy. And I appreciate you more than you know on not just the work level, but on the personal level and on the spiritual level. So before we close up here, where can people find more information about RedStag?

[00:55:29] Tony Runyan: So I mean, going to redstagfulfillment.com is obviously a way to go. And honestly, reach out to me. You know, if you have questions specifically, you can just send an email to Tony@redstagfulfillment.com. And always happy to answer questions. I mean, we really like to be advisors, you know, and that may be us advising that we're not a good fit. That happens regularly and that's okay with us. I think ultimately like that we know that You don't want to force a fit, especially in a business like this, right? So we want it to be a place where it makes a lot of sense for both parties and we think it's going to be a long-term relationship where we both benefit.

[00:56:10] Jon Blair: Awesome, awesome. Definitely check them out. If you want more helpful tips on scaling a profit-focused D2C brand, consider following me, Jon Blair, on LinkedIn. If you're interested in learning more about how Free to Grow's DTC accountants and fractional CFOs can help your brand increase profit and cash flow as you scale, check us out at freetogrowcfo.com. Until next time, scale on.

The Common ERP Mistake Costing You Profit

Episode Summary

This week on the Free to Grow CFO Podcast, host Jon Blair, founder of Free to Grow CFO, welcomes Jared Ward, founder and CEO of Luminous. They dive into the complexities of inventory management, the importance of tracking COGS, and the pitfalls of traditional ERP systems. During their chat Jared shares his journey from launching e-commerce side hustles to leading a $20 million business, and now creating Luminous, a game-changing inventory management system (IMS) designed for modern DTC brands. Jared also shares his insights on the new wave of e-commerce brands, the limitations of traditional ERP systems, and how Luminous fills the gap for mid-market companies. This conversation covers practical advice for tracking landed COGS, integrating personal and professional life as a founder, and why effective inventory management is key to financial health and scalability.

Key Topics:

• Jared Ward's background and journey to founding Luminous

• Challenges of inventory management in scaling DTC brands

• Importance of precise inventory tracking and landed COGS

• Comparing traditional ERP systems and modern IMS solutions

• Integrating personal and professional life as an entrepreneur

Meet Jared Ward

Jared Ward started his first e-commerce company when he was 23. Back then, it was selling baby gates and barn door hardware across a couple Etsy shops and on Amazon. While continuing to grow his e-commerce business on the side he got a job as a sourcing manager at a distribution company to learn more about high level supply chain with major retailers (HSN, QVC, Walmart, etc.).

Years later, after helping countless DTC brand optimize their supply chain through running Made-in-China's sourcing division, Jared noticed major issues in the way e-commerce companies used software in operations. He built and sold an RFQ management system that helped DTC brands optimize their purchasing. Then, he moved on and became a CEO of a DTC brand at 28. His experience running Qualtry showed even more the gap in the market of software solutions in e-commerce that address the entire supply chain.

Episode Links

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

Jared Ward - https://www.linkedin.com/in/jared-luminous/

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

Luminous - https://www.joinluminous.com/

Transcript

~~~

00:00 Welcome and Introduction to Jared Ward

02:29 Jared's Background and Experience

03:34 Challenges in Inventory Management

08:46 The Role of Inventory Management Systems (IMS)

17:01 Modern E-commerce and Outsourced Operations

21:35 Traditional ERP Systems vs. Modern Needs

26:52 The Tech Gap in ERP Systems

27:08 Challenges with Big ERP Systems

30:01 Evaluating ERP Systems: A Personal Experience

36:43 The Importance of Landed COGS

47:33 Integrating Work and Personal Life

52:20 Final Thoughts

[00:00:00] Jon Blair: All right. Hey everyone. Welcome back to another episode of the Free to Grow CFO podcast, where if you listen to us, you know, we're diving deep into conversations about scaling a DTC brand with a profit focused mindset. I'm your host, Jon Blair. Founder of Free to Grow CFO. And today I got my good buddy, Jared Ward, founder and CEO of Luminous on the show.

What's up, Jared? What's up, Jon? How's it going, man? Oh, not too bad. Not too bad. Just, uh, trying to beat this ridiculous heat in, uh, in Austin. Has it started out there in Salt Lake yet?

[00:00:33] Jared Ward: It's, it's in the nineties. We went from like, we didn't even have the spring. It went from like 60, seventies straight to the nineties.

[00:00:39] Jon Blair: Yeah. Yeah. My AC is getting a good workout, but, um, well, dude, I'm super stoked to have you on the show. Um, this has been a long time coming since I was on the ops unfiltered podcast for like, I mean, it was several months ago and, um, What I really want to dive into today is this concept of how do you manage inventory and cost of goods sold as you scale a brand.

We as fractional CFOs, right, we are working with two dozen plus scaling DTC brands who are always struggling with managing their profit and cash flow. And what are some of the biggest components of that? Inventory, right? Driving either good or bad cash conversion cycle and landed cost driving either good or bad gross margins.

And as, as everyone knows in the DTC world, when you're scaling a DTC brand, if you have low gross margins, that means you have less available for customer acquisition. If you've got high gross margins, you've got more available for customer acquisition. And the reality is the brands that we work with in the lower to middle market, five to 65, maybe 75 million a year in revenue.

A lot of them are running inventory on spreadsheets, right? Um, and I mean, I'll be honest with you. I've even worked with a few nine figure brands that are running inventory on spreadsheets. That's inventory planning. That's inventory costing. That's even tracking what's on hand. And the reality is as you start scaling your brand.

Tracking those numbers, getting them precise, and really understanding the drivers of said figures becomes more and more important to the financial health of your brand. So I couldn't think of a better person than you to be chatting with to kind of set the groundwork for where you come from and what you're doing and why, you know, in my opinion, you're an authority.

On this particular, uh, topic, why don't you run the audience through your background and your journey leading up to launching Luminous?

[00:02:38] Jared Ward: Yeah, for sure. Thanks, man. I agree. I mean, it's such an interesting problem. Um, inventory management is so underrated in e commerce operations. And in these people's minds, um, I, I have some theories as to why, but real fast, my background, my background is in supply chain and e commerce.

So I've been launching products or like doing e commerce side hustles ever since I dropped out of college. So that's everything from selling on Etsy, Amazon. Shopify store, um, launching products for, for other businesses or my own. Um, and where I was most acquainted with the problem was when I was CEO of a 20 million e commerce business, we were, we were multichannel, we did light manufacturing, thousands of SKUs, just a lot of complexity on the side of inventory and supply chain.

So that's where I really felt that problem. And yeah, it's what I would say about the inventory problem is so many people are, it's like they're imagine back in the day when you're trying to navigate, when Columbus was trying to navigate to the Americas and he was trying to navigate without a compass, that is, that is what it's like to be a brand, in my opinion, about like two or 3 million in revenue.

So like you've gotten product market fit. It's cool. Like if you haven't gotten product market fit, then the goal is to stay alive. 100%. Do your inventory on spreadsheets. I agree. But you get to a certain point where it's like, you are literally steering a boat without a compass. Your inventory management system is the data that literally tells you how much you have in stock, how much is incoming, how much is allocated.

And therefore that, that can give you real time decisions on, Oh, how much should I buy? Um, there are real stakes to not nailing down your inventory. And I think most operators aren't acquainted enough with those stakes and that that's the issue that you run into.

[00:04:49] Jon Blair: Yeah, that's really interesting. So you founded Luminous born out of a problem that you experienced firsthand as an operator, you realized as an operator, how high the stakes really are in nailing your inventory.

And in, in, in my opinion, Inventory from an accounting perspective, cost of goods sold is just the other side of the general ledger transaction, right? Inventory and COGS are one in the same. And in my opinion, they're just, they, they're recognized in two different, two different times, but nailing those things is critical.

When you were operating that brand as CEO, or even in some of your e com side hustles, like what were some of the things that you saw that just like, ingrained this deeply seated belief that like brands need to nail inventory operations.

[00:05:38] Jared Ward: Cause I was, I was, I was one of those operators that like we had product market fit and we were 15, 20 million in revenue.

What, what happens is at least in my experience, what I've seen across the market and what I've experienced myself is you find yourself operating an eight figure brand on ship station. And Google sheets and QuickBooks and so what was happening, particularly when, when Qualtree, we were, we were true omni channel.

So we had a wholesale arm of our business, we sold on Etsy, Amazon, Shopify, we had multiple brands on Shopify. So this idea of like data mapping and allocation of inventory, it's exponentially more complicated across seven channels. And then when you add whole stuff to the mix, it's done. Um, and it, you brought up COGS like, Oh my God.

Most, myself included, most operators, you're just, you're locking purchasers on Google sheet. Like, you don't even, I don't care what COGS are. Oh, that's just the thing that Jon Blair in my monthly meetings, he's like slapping my wrist on, like put the damn POs in the system. And I'm just like, but why? Uh, so yeah, no, I.

I think once, once operators have had enough, Oh, shit moment, like, okay. Two prop, there's two main problems that, that we're really trying to address at Luminous. Number one is the tech prop. Like there's a tech landscape problem. I have empathy for the operators because, um, they just, there's nothing. It doesn't feel like there's anything better than ship station and Google sheets and maybe like a basic IMS inventory management system out there.

It's like that or next week. That's what it feels like. Um, so I have, so that's number one, there's a tech problem. Like there's a gap, no, nobody's filling that mid market, like as the market leader, the go to. And then the second problem I would say is just operators are like cowboy businessmen and women.

Like they only, for example, they only learn. Landed costs and. The value of keeping track of COGS and the inventory management system. Once they have a really bad contribution margin report, looking back in retrospect, Whoa, I was unprofitable on Amazon. What, how did that happen? Oh, and then you start factoring, Oh, it's cause container costs were 12, 000 and I was doing this and I wasn't tracking my row.

Wow. Okay. I was unprofitable there. So once you have enough of those, Oh shit moments as an operator, then you'll, you'll, you'll naturally learn like you oversell for the first time or you undersell. It's like, wow, we could have sold an extra million dollars. Once you have enough of those, then, then, then you naturally see, okay, there is value in inventory management.

[00:08:46] Jon Blair: Yeah. It's funny, like managing your operations from an inventory and cog standpoint is a burden until it becomes the driver of a major problem. And then it's no longer a burden. It's like, no, no, we will do this right. We will be proactive on doing this right. And, and the reality is like, let's just like take a step back really quick.

Yeah. An e commerce brand is a consumer goods business. The consumer good is their inventory. They are an inventory business, right? Like, let's just like break it down from first principle standpoint, if you're a DTC brand or, or an omni channel, like brand that has a heavy econ presence, you are a product business, which means you are in the inventory business.

And so like. Yeah, you're also a brand, so you're a marketing business. You've got to be really great at marketing. But when you start seeing the, uh, this is what we see when brands are scaling, they start figuring marketing out and they start crushing it. And generally speaking, the founders that we work with, and I think you probably see this a lot because we're in the same space, the founders are product and or marketing like led people.

That's what they're passionate about. That's what got them into business in the first place. Exactly. It makes sense. the product, they figure out how to market it because they knew who they were talking to and who they were selling to. But when that starts working, what starts happening? Oh man, we better have the inventory.

Right. And, and you start realizing there is this very, very delicate and important connection between the two, because. They feed off of each other. You stock out, dude, all your, your Facebook ads lose momentum, your Amazon listings lose momentum, and you worked your butt off for months or years to be at the top of those rankings, and then overnight, it feels like you can just lose momentum.

And it's like, man, trying to get back to where you were once you're back in stock is really challenging. And so, like, there's a huge cost, right? But on the flip side, If you hold way too much inventory, you have no cash, right? All. And you may have profit on the PNL, which is everything, right? Like if you may have profit on the PNL, but no cash in the bank.

And you know, as I always say all over the place in my content, profit doesn't matter. Profit. And cashflow together matter. And so like, uh, man, you just talked about like five or six things that I just noted that we could dive into, but I want to, I want to circle back to a couple of things in particular.

One IMS. So like the DTC world is laden with what acronyms, ROAS, MER, IMS. Right. I, IMS is one that I bring up a lot MRP. Oh my gosh. Yeah. I get the list goes on. Um, and depending on who you talk to, they give you different definitions of those things. But I'll bring up IMS to prospects and to clients and they're like, what is an IMS?

So actually I want to go back to basics. What's an IMS? And not just what the definition is, but what's included in an IMS from a functionality standpoint.

[00:11:51] Jared Ward: Yeah. So an inventory management system, um, inventory management system is, um, You have your product repository, first of all, I'll, I'll say for e commerce companies, like the basics for an e commerce company, like Omnichannel.

So number one, you have a product repository. So this is, it's, it's really your single source of truth with products. And that repository is going to be pushing or pulling from all of your channels. So like I have this SKU that I'm selling and I'm selling it to Shopify on Amazon on Etsy. So my IMS is going to house that product.

And it's going to map it to all of those selling channels. Um, then what you're, you're going to have your incoming on hand, pending or allocated and available. And I would say one more thing on top of that is it tracks. Your cost of goods sold. So it lets you know, one, one, very, very

[00:12:56] Jon Blair: small, one, very small thing, right?

Oh, and it tracks your cost of goods sold. That was an accounting joke, by the way, of everyone. Yeah,

[00:13:07] Jared Ward: it's going to track your cost of goods sold. If it's really good, it's going to be able to track landed costs and it's going to be able to allocate, you know, the, the way you do purchasing overseas, it's going to be able to allocate those variable costs into the product.

But, um, Yeah, at the most basic level, how much is available for my channels? What does it cost? What is the cost of goods that I'm selling?

[00:13:33] Jon Blair: So here's the thing. This may sound basic, right? What Jared is walking through. And obviously, this is the blocking and tackling. This is the fundamentals of inventory management.

But then you layer in, like Jared is talking about, multiple sales channels. Even this light manufacturing, which we'll talk about in a second. So, um, and my definition of light manufacturing is like assembly, right? Like some, some assembly or kidding, some form of that, um, kind of where you, you're stocking certain skews.

At a component level or a sub assembly level, but you're selling them at an assembly level. So you're having to, you're having to assemble them. So this is the transformation of actual skew and quantity on hand by skew. So you have now, we're, we're talking like you're tracking what's on hand, what's on order, what's available, but now you have Shopify, Amazon.

Maybe you have some other marketplaces you sell through. Maybe you have some wholesale. And then you also have components on hand, but then also efficient finished goods. So when you start thinking about all those variables, it's all, it's exponentially more complicated, right? What are some of the traps or the issues that you see when there's a brand that's set up like that and trying to deal with that complexity and they don't have an IMS?

[00:14:52] Jared Ward: Well, I, I see brands, it's, it's actually an important question. What is an IMS? And I think so many brands don't conceptualize this. And here's, here's why we get this request all the time. Hey, Jared, once Luminous is fully implemented, can you, can you push COGS to Shopify or can you, uh, can we keep just writing purchase orders on Shopify?

Um, and the question I have there is like, why would you use, why do you want Luminous? Then, um, we are an inventory management system. If COGS aren't going to be tracked and pushed to your accounting system of record, I honestly don't understand why it's, it's an unnecessary step. Um, it doesn't make, but we get that all the time.

So I think people confuse inventory man, like they, they leave out parts. So specifically what, what touches inventory management? Well, purchasing. Like you'll, a good IMS will have good purchase order management. Um, and you'll be able to split off your shipments and calculate landed costs in there. Um, it all, it should be able to connect in my opinion, modern day e commerce companies, a good IMS should be willing to connect into your 3PL.

So you can have live visibility. Like that's my opinion. What a good IMS should do for e commerce companies. And you don't want to Jerry rig and like have some of it here and some of it in QuickBooks, but most of them Luminous. Like, no, your IMS is your system of record. And generally speaking, you're actually just kind of pushing journal entries.

QuickBooks or your accounting system of record.

[00:16:40] Jon Blair: Okay. So there's something I just thought of right now, which is, uh, and Jared and I, by the way, I've had many nerdy conversations offline about, um, about all of this stuff. In fact, I'm, I'm an advisor to the company because I believe so much in what they're doing.

Um, but something just dawned on me that we haven't talked about before. We talk about the IMS for the modern e commerce omni channel e commerce brand, something just a light bulb went off about one thing that you guys are doing over there at Luminous. And I think this is going to actually segue nicely into a conversation about ERP.

I have a lot of experience with traditional ERP systems because before my e comm days, I come from a manufacturing background. I ran finance and accounting at, um, pretty like, uh, companies that had pretty robust. Actually, very robust manufacturing operations and traditional E. R. P. Systems in in that kind of a context.

They're meant for managing on site operations, right? Um, on site. transformations of raw materials to sub assemblies and and finished goods assemblies on site, labor allocations on site fulfillment. The modern e commerce brand in a multi or in a, in a omni channel setting may have some onsite operations, but actually a lot of it is outsourced, right?

So contract manufacturing is outsourced, maybe Comet, like you maybe have a co packer where you're, uh, You have, you have a raw materials and components on site and they're doing the transformation to finish goods. You've got three PLS like you're talking about. You have marketplaces that you're selling on.

And so when you take a modern or sorry, an old school or traditional ERP system that, that was, was really designed to, uh, control inventory and inventory operations on site, and you try to apply that to this modern omni channel e com brand, where really you need to connect into all these disparate systems where these transactions are taking place.

Bring them in to Luminous as your single source of truth and even push some stuff back out to them. That's a different tech ecosystem, right? And this just dawned on me while we were chatting right now. Talk me through that a little bit and how you guys view, how you guys have seen that gap that's, that's not being handled by like traditional ERP systems.

[00:19:09] Jared Ward: I mean, dude, you nailed it. Traditional ERPs were built to take all this on site in house. So if I, for example, we see this quite a bit. If I want to use Dynamics 365 as my system of record and, um, but I have a co packer or a co manufacturer who's producing the goods, basically I'm like running Assembly orders.

And I'm doing all this stuff like on behalf of the, it's getting done in two systems. Dynamics 365 was not architected to be able to plug into this for the, and then plug in the ship station for your fulfillment and deplete from there. And then, um, It doesn't do that, um, with high levels of customization.

Maybe it can, um, after a lot of expense, very, very

[00:20:00] Jon Blair: expensive, high levels of customization that take a really long time to

[00:20:05] Jared Ward: exactly. So what Loomis is doing, we have a belief that. We're, we're, we have to be connected to our ecosystem. So we, we, we take a look at the brands that we're servicing. Um, and I'm actually curious your thought on this.

So many brands, because they use a 3PL or a co manufacturer, they, they don't think they need an inventory management system. We obviously disagree. I think the market is just right. For an inventory management system that can plug into all of these WMS is on the market. So I can plug into your three field.

If you have a West coast and the East coast three field, I would argue you need an inventory system more than most brands. Um, so Luminous goes the route of, we will, we see it as our duty to plug into any WMS on the market. So we are architected to plug in and pull sales order data, but also push pull inventory data.

And then we can also push it to all of your different channels. So like a really common use case is I have a West coast and the East coast 3PL. So Luminous sits on top. We connect to both of those. Um, it's very common that, um, we will have to push wholesale sales orders to those 3PLs. So Luminous comes front of line.

We're pulling a lot of stuff, but in some scenarios we are pushing wholesale, wholesale orders to, to those 3PLs.

[00:21:34] Jon Blair: Yeah, it. It's um, this actually segway is going to segue nicely into something else that you and I talk about a lot, which is this new wave of e commerce brands. Right. But backing up to what, what you were just mentioning, I think because the modern day e comm brand has so much stuff outsourced.

There is a physical and geographical, um, you know, separation between the operations of the business being manufacturing and fulfillment, like the site, the onsite activities of those things happening. There's a separation between most brands and that happening. Whereas like back in the day, again, when I was working in a manufacturing environment, I stepped through a door and I was in a machine shop or I stepped through the door and I was in a plating shop.

That stuff was happening on site, right? Um, using outsourced 3PL, outsourced manufacturing, even though those inventory, uh, transactions are happening somewhere else. Once you get to a certain scale and a certain level of complexity, you do still need a, like, like Jared is saying, a system of record that you own that, that actually, um, you know, records those transactions because you need to do things with that data that's really important.

to your financial and operational health. And now, um, I think that it's become somewhat of a lost art from my opinion to want to do that just by virtue of like most brands not ever having to have stepped foot into a warehouse and design how the fulfillment flow works or like, like what, what, like from my perspective, man, the reason why I have a very unique perspective on inventory control is because like I was sitting out there with warehouse guys.

10 years ago, just deciding how we put stuff away in certain locations, right? Like to increase efficiency or, well, dude, you're the unicorn stage.

[00:23:34] Jared Ward: Yeah. And you are the unicorn. You, you have operations and financial background and ERP experience and down marketable experience. It's like,

[00:23:42] Jon Blair: well, and so it's, but what's, what's interesting is what.

You actually coined this term for me is like the new wave of e commerce brands. We talked about this when I was on your podcast, which is that like the new wave of e com brands is this like scrappy, um, very overhead light brand, right? Like you get to product market fit. Super scrappy doing everything on spreadsheets.

The founder is doing a ton of stuff themselves, right? Like, and I even talked with my buddy, Will Holtz a couple of weeks ago and he on the show and he had a Shopify brand aggregator and what he found when he went to go roll up, like purchase a bunch of these Shopify brands several years ago, he found it was hard to remove the founder.

Why? Cause the founder was doing accounting stuff, marketing stuff, product stuff, you know, inventory planning, the new wave of Vcom brands, right? Like they're super, super overhead light, meaning what they outsource a lot of stuff. They outsource financing and accounting to firms like Free to Grow CFO. They, they outsource fulfillment to three PLS.

They outsource manufacturing to, you know, um, overseas. Co manufacturers, so they're removed from those transactions. So they don't internalize the importance of tracking them and understanding them and using them to their benefit. And so I, I, I 100 percent see the same thing. Um, and so there's like, there's kind of like a double edged sword to this whole, like running the lean and mean e comm brand of today.

It's, what, what's, what I find fascinating is the number of brands I find that get to 10 million in revenue. And, and profitable and just like no one on the team, it is impressive, but on the downside, there is a separation for a lot of them between like how their product gets made and how it gets fulfilled in reality versus what they think is happening, you know?

And so it is, I find it very interesting. I do want to like, Actually, like, turn our conversation back to the ERP thing a little bit more. I'm seeing more and more brands come off of the NetSuites of the world, the Acumatica's of the world

They started growing into eight figures, healthy eight figures in revenue, they were experiencing those pain points you were talking about when you're, when you're walking through your experience as an operator and they're like, I've got to get off the spreadsheet.

So they're bought in. QuickBooks, App Marketplace, the inventory plugins, like the legacy ones that are out there, Fishbowl, and there's SOS Inventory, and there's a couple other ones. I'm just gonna say it, I'm sorry, they all suck. They all suck. And um, it, but, so then you start feeling compelled. To look at NetSuite, Microsoft Dynamics 365, uh, Acumatica, I'm seeing more and more brands who took that leap, got there, and they actually either never got the implementation fully off the ground, right?

Like, years later. Or they did and it's so overkill and every time they want to change something, they have to hire a consultant to come in and do it for hundreds of dollars an hour. And it still never quite does what they want it to do. And they end up retreating back to QuickBooks and spreadsheets. Are you seeing the same thing?

And what other insights do you have into that trend?

[00:26:57] Jared Ward: Absolutely. And that's, that's the number one thing that I talked about at the beginning, the tech gap. So I have empathy for founders who run into this. And yes, it happens all the time. And it's because think about it from this perspective, when you're ready to make the leap as an operator to an ERP or to just to an inventory system, you're looking around, it's like Fishbowl, SOS, maybe you try out SIN 7 and it doesn't work for you.

Um, when you, these are enterprise sales. So if I, if I hop on the phone with NetSuite, Acumatica, Dynamics 365. I'm not, I can't poke around on there. I'm just getting feature sold and technique. And that's the problem. If I hop on the phone with a NetSuite rep, technically they can do anything, literally anything.

And so you're sold on a, like any brand over nine figures, it's on NetSuite. Like this is the way to scale. Oh yeah. Literally that list of requirements. We can do all of it plus more and what they don't understand is, yeah, that's true, but when you get into the system, they, they underestimated how much is going to have to be customized because there's a fundamental difference between who NetSuite was built for.

And then this, what'd you said? Over overhead light or over light.

[00:28:30] Jon Blair: Yeah, no super overhead lights, scrappy new, you know, new age E comm brand. Right.

[00:28:36] Jared Ward: Yeah. And a great example is purchasing in that suite versus purchasing, like in QuickBooks, for example, so you you're going to a system that it's default is.

Like a hundred step process. I'm exaggerating, but like, let's, let's call it an eight step purchasing process. And so, yes, they can do everything, but now your purchaser, Oh, who by the way, is also like doing seven other things in your business, Is like lost in the interface of NetSuite and now apply that to every other role.

The e commerce company, it just feels too big. These big ERPs, they feel too big. Um, so the way Luminous sees the market is how we're building every single module, every single experiences. It's for that modern e commerce company who they have a purchaser. Who's. Doing a lot of things like they're doing the demand planning there.

They don't have a sourcing team. They don't have a team for contracts. They don't have a assistant buyer. Well, they might, but I mean, it's normally just one guy or girl doing everything. Same with your warehouse manager. Um, so we, we, we tailor those experiences for that, with that in mind.

[00:30:01] Jon Blair: Yeah, um, I've been through, uh, firsthand a NetSuite, um, well, we'll just call it a traditional ERP.

evaluation process. And, um, it was super overwhelming. It took me six months just to evaluate Dynamics 365, Acumatica, and NetSuite.

[00:30:24] Jared Ward: Six months? No way. Yeah, because I, well, because

[00:30:27] Jon Blair: I was taking so, I was, like you mentioned, All three of them. There's no such thing as a demo account or a free trial or anything like that.

Or, or if you want to see a demo, you have to like schedule a call with a sales engineer, it's usually like two weeks out. It's not like they can get on one tomorrow. And they, they try to ask you all these questions to make it fully customized and make it look like what you're like your company. And it's always misses the mark.

And, and then once you look at it, you can't go back in there and Mess around with anything. It's it's, they're always trying to push you to the next process of, of the sales cycle or like the next step. And like, I S I just, I spent a ton of time asking them just a ridiculous amount of questions, but mostly cause I had used Epicor ERP before.

And so I had a sense of what these things could do. And I was just like, I want to see what we're getting ourselves into. Cause these all have huge price tags, right? And the interesting thing is, there's this new tactic they're all using, which I get, like, one of the classic objections is, Hey, I heard that the implementation my buddy did, You guys told me it was going to cost 30k and it ended up costing 100k, right?

And they're like, oh, it's a fixed bid implementation, right? Where it's fixed bid, it's not hour and time, you know, time and materials, like. And the problem was, we ended up going with NetSuite, which we went with their, uh, They sell this new version quote of NetSuite that's supposed to be like this tailored down version and the reality was that, um, crazy enough like at six months later they got it implemented.

I actually left the company and started Free to Grow mid implementation. I caught up with Brian, the CEO last week at Guardian and they got off NetSuite and they're back on QuickBooks and Spreadsheets and they're trying to figure out, they're trying to figure out what they do next. And they manufacture, they have their own factory up in Indiana.

[00:32:27] Jared Ward: I think it's so important though. Why did you end up choosing NetSuite? Cause yeah, what I've seen, I'm curious to hear what you say is it's just because They're the big, like, they're the guys that they are. They're the established ERP brand. And I think what we're feeling, the repercussions of a big legacy ERP going down market, and then we're really feeling the gap in the market.

And now the mid market is hungry for, okay, well, that's not it. What else can we have?

[00:33:05] Jon Blair: Yeah. You know what, man, I learned a valuable lesson. Um, And, and it's funny cause I had ERP experience. So you would think that maybe I was not going to be susceptible to making that mistake. And we did. Right. And, uh, well, first off there wasn't, there was even less.

[00:33:22] Jared Ward: No,

[00:33:24] Jon Blair: I think, I think it's a logical conclusion. It was to me, it was a logical conclusion given the options we had five years ago. Right. Like, and, and, um, I mean, I wish a Luminous was around. That's why when we met, I was like, man. Cause I was like, this is, this is what I, I wish that I had gotten guardian bikes on several years ago.

Right. But like, The reason we went with it is because they did a really good job of selling us on the fact that like, they had created a simpler version of this legacy, super intense ERP system, and that it was gonna grow with us, right? Um, and so, And what I learned, though, most valuably from an operations standpoint was we were gearing up to become a light manufacturer.

Light manufacturing meaning assembly, right? And I learned that NetSuite, in my opinion, is overkill if you're just kidding, doing kidding and assembly. Um, Where the background I come from, uh, using Epicore ERP, which was absolutely a bad ass system for what we're doing is complex manufacturing. We had multiple operations in machine shops and plating shops, brass foundry, like crazy stuff, right?

And we had to manage work centers and the flow of goods that had been picked and were on the floor way different than just picking kidding or assembling something into a new skew. Right? And so I what I realize is, unless you're doing complex manufacturing, You've got to go with something simpler and more cost effective, um, than, than one of these legacy ERPs or else you're just going to end up pulling your hair out after you spend all the money that you're spending customizing it and it still doesn't do what you need it to do.

[00:35:19] Jared Ward: Wow. I think the market is hungry for the NetSuite. But I think, I think NetSuite had a false, how do I say it, like a false, they had like a false rise. Yeah. As far as like the go to and, you know, fast forward five years of them going down market, I think the market is now primed and ready for a solution like Luminous, um, and, It's, and it's, it's going to be, it's still going to be a long road.

I mean, Brendan and I say this all the time. What's the difference because we look at, we look at all the competitors in our space and it's, it's, uh, it's a graveyard or it's, or it's like people who've had really positive exits. But the number one thing is. You just have to keep building. Why, why isn't that sweet?

The go to well, they start out with a hundred million dollars and they've been building for 25 years. So Brendan, my co founder and I, we say this all the time. Like we're in this for the next 10, 20 years. We're not, I'm not going to get bought out. It's not going to happen. Like I'm, I'm building for the next 20 years.

[00:36:39] Jon Blair: I love that. I love that. Um, alright, I want to chat. Landed COGS now. Um, LA landed. Cost of goods sold. Uh, this is a topic that Jared and I really hit it off on when we first met when I was on his podcast. Sounds so dumb. I know.

[00:36:55] Jared Ward: We really hit it off. Talking about, yeah. Really hit off

[00:36:57] Jon Blair: talking about landed COGS.

Man. We knew we were gonna be friends for life. Um, it's funny that the nerdy conversations that happen in and around this business, it's, uh, it's what keeps me going, man. Um, but okay, Landed COGS, every brand we work with, an encounter in our, as we're prospecting and talking to, you know, potential new clients, almost, I mean, 99 percent of them on our first conversation, Let us know that they are pulling their hair out, trying to track their landed cost of goods sold.

Why is it so important? It's so important because it is one of the biggest costs that go into gross margin and ultimately contribution margin. It is a huge driver of not only just profitability in general, but how much do you have available to spend on what customer acquisition, which is incredibly important in an E com business model, right?

Landed COGS get super complicated. Because of a lot of different factors, but Jared, you being front and center in the market, that's helping solve the problem of tracking landed COGS. Like what are some of the big pain points or complexities or challenges that you see time and time again with the brands that you guys work with at Luminous?

[00:38:15] Jared Ward: Yeah. So first off, even legacy ERPs, and I've yet to meet a brand on a legacy ERP with all the functionality of the world that tracks landed costs within the system. They do it on spreadsheets and they're so with, with Luminous actually with a lot of advice from you and some other accountants, um, and then, and then merged with like my, my operation background, what we came up with is, uh, just barely launched by the way.

Um, you can, you write, basically you need a really flexible purchasing flow where you can split off shipments really easy and then add your variable costs to that cost layer and in a really easy to use way. So what we do is we just allow for very flexible purchasing. And then it's so common that this is why I think it's really hard to track land of cost.

It's because. If, if I'm, if I'm purchasing like a thousand of this skew for my manufacturer, what's very common in e commerce because they're normally just flying by the seat of their pants and they, like, we need some of those units here right now, they'll, the manufacturer, they'll get into a habit of partial shipments.

And so the manufacturer will reach out to me. Hey, Jared, we finished the first 300 units. Would you like me to ship those out? Oh, also on PO 26 and PO 62, we finished 200 units of this and a hundred units of this. Yeah. Bundle those together. Let's ship them over. In fact, the next hundred let's air those over so we can give them to Amazon.

Like. That shit starts happening. And it's so common. And there, a lot of times there's not a good flow for that. And this is where we've gotten some good advice from you. Um, we allow those actions really easy, easily and Luminous. And then our cost layers take into account like tariffs or duties, whatever those variable costs are, and they're, they're either allocated at a quantity basis.

Or they're allocated at a volume basis. So the reason why I think this matters, to do it in the system is we thought at Qual Tree, our margins on the skew were 60%. And they were like 15%. And it's because we weren't allocating the land to cost properly. So we. It's like the difference between, Oh yeah, man.

It's like a, it's like two 40 per SKU. So yeah, we're at like 60 percent margins. Then you actually add in, then you get the bill for, for your tariffs and your, and your shipping and you're like, It's my land. It costs is actually like 6 and 30 cents. We've been selling this thing at near a loss or break.

Yeah,

[00:41:17] Jon Blair: well, yeah. And then, I mean, then you look at your, uh, freight out and fulfillment costs, your credit card fees. If you're, if it's in a e comm, um, You know, sales channel. And then you look at your marketing spend and you're like, you probably were making, you probably had a loss from a contribution margin standpoint, but there's a couple of things you touched on there.

So like to back up and just kind of summarize for the audience, what Jared is talking about is that your, your landed cost is not just the manufacturer supplier invoice costs, right? It includes freight and duties. And if you allocate those incorrectly using the wrong methodology, or, or you Using the wrong methodology or the wrong timing, you may vastly underestimate your landed cost, meaning that you're going to overestimate your, your margin and you can run into some, some really big trouble.

When you talk about the difference between allocating, Uh, duties and freight based on quantity versus, uh, volume. That's a really important consideration because you have some products that are large and low value or small and high value, right? And if, and if, if the, the, the shipping method that you're using really is, is.

More driven on volume than it is on like the actual quantity. When you have it, we have a shipment of like, like kind product, similar size, similar weight, you can use quantity generally speaking. And you're, and you're okay because you're shipping a homogenous kind of like set of goods. But if there's big variation.

You've got to consider going like volume based or else you could end up under or over allocating cost to a skew. And based on the sales price value of that, whether it's high or low, you can have a huge distortion in your margin. Like, and I've, I've seen brands get into A lot of trouble there. Do you have any advice on like how to think about that kind of stuff?

[00:43:17] Jared Ward: Yeah. So I would say, I mean, first off, you, you need a system of record. Um, again, it goes back to this product repository. Um, even just making sure that you're tracking all of these transactions, even, even just in a Google sheet, like I always tell people to at least just start with a Google sheet. Um, I personally would recommend.

Allocating these variable costs, um, through volume, um, through dimensions. It's, it's more difficult, but it can be done. And if you don't have a system that can do it right now, then do it on, do on Excel. There's, there's so many, actually, there's a lot of free Google sheet templates out there that will show you how to do this, obviously with chat GPT nowadays.

Um, yeah, I would strongly recommend tracking all these things, even if you're tracking in retrospect, like. You will uncover something that you didn't know. Like I promise you it's, if you do this, it will flag a skew. Um, sometimes in the bad way, sometimes in the good way. Sometimes you're like, Oh, wow. Yeah.

We're really profitable on that actually. And that's moving most of our business. Um, it's also probably going to flag a couple of skews where you're like, wow, we are breaking even or unprofitable on this. Yeah. Um, so it will illuminate your eyes in some way if you do. If you

[00:44:45] Jon Blair: allocate based on volume, so, um, another thing you mentioned is the partial shipment thing.

It's like tracking partial shipments gets really messy. And even, even worse, or even harder is if it's partial shipments off multiple POs that are getting bundled into a single shipment, right? So you've got duties and freight. That effectively spans across multiple partial shipments of multiple POs. And so when you, at the very beginning, like Guardian, when we were just ordering a container of bikes and we were just getting a container at a time.

It was super easy to calculate landed costs at that time, right? We were ordering a few containers a year. Super easy to match duties, freight, back to a single PO. We were mostly getting full shipments from a single PO. But as you start scaling, and like, inventory starts flying off the shelves, and like Jared mentioned, like, you just, you, you need whatever inventory you can get, and you need it fast.

Things start kind of spiraling, and then again, going back to what Jared Was talking about at the very beginning of the conversation, which is like you've got multiple sales channels that you need to represent available inventory on at the exact same time. Right? And you can't represent something you don't have on a given sales channel.

It's actually getting decremented as it's getting sold. And then if you make matters even more complicated, you've got light manufacturing. Now, on the purchasing side, you've got these multiple layers of complexity on the sales channel side, you've got multiple layers of complexity, and then you've got light manufacturing.

So you're transforming SKUs from, you know, components into finished goods. If you have any level of, of any of those things, you have to consider an IMS. You have to consider an IMS so you can keep your inventory levels healthy. Because healthy inventory levels drives healthy cash flow and so that you actually know your cost of goods sold Because then you actually know your margins and you can actually make decisions as you scale that increase profitability so I just want to like make sure everyone understands that summary that an IMS is very important and where Luminous is doing a fantastic job is they're occupying this gap between QBO and spreadsheets and all out traditional, super expensive, way too robust ERP like NetSuite and Acumatica and Dynamics 365.

And so it's a solution that you should absolutely consider as you're scaling your brand into the healthy seven and eight figures of revenue. Um, So, gotta land the plane, unfortunately, Jared, pretty soon here. Um, like I said the last time that we chatted, I feel like, uh, we probably need to do this every few months to just keep talking about what we're seeing in the marketplace.

But before we do land the plane, I want to talk about something, um, I always like to ask a personal question, and it's because at Free to Grow CFO, the balance between personal life how And, and, and, and, you know, professional life. And I would say the integration and that you really can't separate the two super important to us and is near and dear to my heart as, as the founder of our business.

So I always like to talk, um, personal for a few minutes with everyone who, who comes on board. One thing that you've got going on in your life that I'm like super impressed with is being a single dad. You're a single dad and a founder CEO. Of a thriving startup. How have you been able to hold that down and what advice do you have for the audience and maybe someone out there?

Who may be in a similar position to you of how you've been able to manage that over the years?

[00:48:25] Jared Ward: Yeah, great question. Yeah having Having two kids full time while running a startup is extremely challenging. I would not recommend it. Um, that's the first thing I would have recommended. No. Um, honestly, I think I've, I've learned over the years.

People always say like separation of work and home and like your personal life is here and your work is here. And like, Totally separate, like a rigid wall, and you need to build that wall higher and set more boundaries. Like, to each his own. Like, personally, I disagree with that, and I found that to be highly ineffective.

For me, it's, it's, it's actually effectively integrating those two things. It's like, I am Luminous, like Luminous is a part of my personal life and that's okay. And like, I bring my kids to work all the time. And I think we have a lot of employees, like all of our employees, founders, the shareholders in the company.

Um, I think we all, that's the culture at Luminous is you integrate personal into your work life. Everybody brings their kids to the office.

It's totally fine to dip out for two hours. Hey guys, peace. I'm, I'm just, I'm going to go take a nap or like, I'm the kids are here for the, I'm going to go take a nap. And it's like 2 PM on a Tuesday. Like, so that stuff is okay. But also like we're all working at like 6 30 PM or bringing our kids to the office at four o'clock, or we're all helping each other on a Saturday so I can get some work, like, I don't know.

I've just, the concept of integrating your work and life together has been profound for me. Like I, I love it. I don't, I just, I love what I do. My kids are like a part of Luminous. My son like knows every single person and he likes to jump on and try to do cold calls. And so I would say lean into integrating them more instead of separating them and building like all these really firm boundaries.

[00:50:41] Jon Blair: Yeah, I really like that. We have a similar culture here at Free to Grow in terms of like, it's just so happened. You know, one of the reasons that I left guardian bikes when I did was because I started having a bunch of kids now have three, um, five, five and younger. And, um, You know, it just, you don't want to be in a place where you have to be ashamed of being a parent.

I think being a parent is like one of the most worthy causes in the world to be quite honest with you and like, but so is being a hard worker. And I think there's also something beautiful about inviting your kids into your work to show them what you do, right? Like, how do our kids learn? They learn by, by watching others, right?

And in large part by watching their parents. And, and, um, it's funny cause this is not a requirement to work at Free to Grow, but it's turned out that we are. Uh, we're building a company that's mostly parents of kids that are like five and younger. We all have little kids and, and, and, and we're starting as you kind of build more, uh, as we kind of build a team that has that in common, it starts attracting more and more people because like when someone's like, Hey, I was up all night last night because my kid was throwing up or my kid had a fever.

We're like, we all have so much grace for if they've got to miss a meeting or like you said, they need to take a nap or they need to take their kid to the doctor or whatever. It's like, yeah, dude, please do that and don't feel ashamed about it and don't hide it. I know you're going to crush your work as soon as you get back to it.

Right. And at the end of the day, too, like

[00:52:14] Jared Ward: integrating integration,

[00:52:17] Jon Blair: 100%, 100%. Um, all right. So before we shut down here. I'm going to be honest. Maybe I'm a little bit biased cause I'm a, uh, an advisor and Jared's one of my buddies, but he's, he and Luminous are putting out some great content, highly recomme

Where can people find out more about you and your content, Jared and find out more about Luminous.

[00:52:40] Jared Ward: Yeah. So, um, follow us on LinkedIn. Um, that's just my name, Jared Ward Luminous. You'll find us, um, or at join Luminous, go to join Luminous. com, join Luminous. com. Just as it sounds, you can find actually all of our content there.

Um, if you're a YouTube, if you're a YouTube fan, then just call me Jared underscore Ward, um, I post educational content and also my podcast, the opposite of the filter, it's very similar to this.

[00:53:05] Jon Blair: Um,

[00:53:06] Jared Ward: yeah,

[00:53:07] Jon Blair: definitely check out Office Unfiltered and the rest of Jared and Luminous uh, content. Um, and look, if you want to find more helpful tips on scaling a profit focused D2C brand, also consider following me, Jon Blair on LinkedIn.

And if you're interested in learning more about how Free to Grow's D2C accountants and fractional CFOs can help your, your brand increase profit and cashflow as you scale, check us out at freetogrowcfo.com. It's been a joy talking today, Jared. I appreciate you joining. And, uh, look forward to chatting again soon.

[00:53:38] Jared Ward: Thanks, man.

[00:53:39] Jon Blair: See ya.

The Power of Integrating Physical and Digital Retail Experiences

Episode Summary

This week on the Free to Grow CFO podcast, host Jon Blair is joined by Matt Ezyk, Director of eCommerce at Pet Supermarket. They delve into hybrid physical and digital retail strategies, focusing on AI integration to optimize profits for DTC brands. Matt shares insights from his extensive experience, including successful strategies like Buy Online Pick Up In-Store (BOPIS) and ship-from-store models. The conversation also explores valuable AI tools for smaller DTC brands, emphasizing the importance of personalization, ad optimization, and leveraging customer data. Tune in for an insightful conversation filled with practical tips and strategies to help you scale your DTC brand with a profit-focused mindset. Whether you’re just starting or looking to optimize your existing operations, this episode is packed with valuable takeaways.

Meet Matt Ezyk

Matt Ezyk has decades of experience building, scaling and leading digital commerce product, operations and strategy at some of the most innovative companies in the world. Prior to joining Pet Supermarket, he served as Director of Functional Architecture and Director of PMO at RafterOne (f/k/a PixelMedia) with operational oversight of teams working with iconic brands like Skechers and LL Bean. Matt also served in progressive leadership roles at Accenture, Merkle (f/k/a LiveArea) and several startups working with hundreds of global brands like Uniqlo, Disney, Revlon, Tapestry and many more. Matt brings to Pet Supermarket a deep expertise in developing and implementing diverse end-to-end commerce strategies.

Episode Links

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

Matt Ezyk - https://www.linkedin.com/in/mezyk/

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

Pet Supermarket - https://www.petsupermarket.com/

Transcript

~~~

00:00 Welcome to the Free to Grow CFO Podcast

00:28 Guest Introduction: Matt Ezyk’s Background and Role at Pet Supermarket

04:22 Strategies for Hybrid Physical and Digital Retail

05:06 Implementing BOPIS and Ship-from-Store Tactics

07:03 Challenges and Solutions in Inventory Management

16:51 Expanding Geographical Reach Through E-commerce

19:29 Leveraging AI for DTC Brands

26:33 Challenges in Implementing AI

30:13 Overcoming AI Implementation Hurdles

35:02 Generative AI: A Continuous Journey

42:04 Balancing Personal and Professional Life

47:12 Final Thoughts

[00:00:00] Jon Blair: All right. 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 DTC brand with a profit focused mindset, I'm your host, Jon Blair, founder of Free to Grow CFO. We're an outsourced finance firm that specializes in fractional CFO and bookkeeping services for growing DTC brands.

Okay, so what are we talking about today and why should you care? I've got my buddy Matt Ezyk on board with us today. He has some really interesting experience around the use of hybrid physical and digital retail strategies and leveraging AI. Here's the thing. The reason why we're talking about this today.

It's because some of the things that Matt does working for a larger retailer can feel like it's out of reach for a DTC brand in the lower to middle market, which is the size brands that free to grow is usually working with typically 5 million to 65 million a year in revenue. The thing is Matt Matt's experience, um, is actually applicable.

in many ways to what you're doing in the lower and middle market as a five to 65 million DTC brand. You probably just don't hear about these things a lot. They're not probably not talked about a lot in your ecosystem. And so, you know, from my perspective, bringing Matt out of kind of like more of an enterprise level environment into the world that we live in every day in Free to Grow CFO.

And I think you're going to find a lot of really helpful advice. You never realized before actually can be applied to your brand on a day to day basis. So Matt, thanks for joining us. I'm super stoked to have you on today. How you doing, man? I'm doing great. Happy to be here. So as director of e commerce at pet supermarket convention at the beginning of the episode, you've got a lot of really interesting experience at this kind of like marriage of enterprise Uh, level brick and mortar retail and e com, which is the, the, the, you know, division of the business that you run.

We're going to dive into dive into some of your experience deep today, but I want to start with a high level background of you personally and professionally and how you ended up at pet supermarket running their, their e commerce. Yeah. 

[00:02:14] Matt Ezyk: So, uh, so pet supermarkets, a little bit about the business where, uh, One of the largest small format pet retailers in the United States.

We operate over 200 stores and we're mostly located in the Southeast, mainly in Florida. We're headquartered in Florida. Um, I lead their digital business. So that's the e commerce business and then our marketplaces that we operate in. So like Instacart and DoorDash, for example. Uh, I've been here for a little over two years.

And my role has evolved here. I came in on the technology side, and I actually founded our our e commerce business here, then shifted my role to what it is today as a director of e commerce. Most of my background has been in the agency world, and I've worked with Salesforce Commerce cloud and marketing cloud most of my career.

So I've done strategy work. I've done, um, Project management, leading teams, uh, on the operation side and the technical side. And I've worked with brands like Uniqlo and Disney and tapestry, uh, over a hundred brands in my career. So I've always wanted to go to the brand or retail side to take what I've learned in the agency side and apply it and do a lot of tests and learn.

And it's been really fun being on the side. So I've been in the industry just about, uh, or just shy of 15 years. 

[00:03:32] Jon Blair: Awesome. Awesome. Uh, for those of you that don't know, I actually met. Matt, um, on the, uh, other side of the pond in Ireland at a, at an e commerce event about six months ago, we really hit it off chatting about different tactics and strategies that he's used at pet supermarket.

And candidly, a lot of these were things that I've never been exposed to, because again, I've been in the lower to middle market of, of digitally native or DTC brands for most of my career. And it was just kind of mind blowing some of the things that Matt has tried and actually things that didn't work, things that have worked, um, as he's built up the e commerce business at pet supermarket, again, with this, um, brick and mortar retail network at his disposal that most of us in the DTC world don't have.

And so what I want to get into to start is to chat about some of the, um, just strategies that you've deployed. And what I'm calling We're talking about before we hit record, a lot of people like to call it Omnichannel. I think that's a little bit too, uh, generic for this conversation. I'm calling it hybrid physical retail slash digital retail.

And meaning, how do you smash together digital advertising tactics? And a physical, uh, retail network, right. Um, to maximize profitable, uh, scale or new customer acquisition. Can you, can you walk through some of the strategies and tactics that you've used that have worked well, um, by kind of bringing those two worlds together?

[00:05:06] Matt Ezyk: Yeah, when I started here, um, we weren't using our best asset, which is our stores, you know, we have, uh, I think today we have 228 stores. Uh, if you've never been to one of our stores, they're, they're super cool. You go in, there's just a great vibe to them. Um, there's, you know, cats that you can adopt.

There's all sorts of animals you can buy. There's birds, there's lizards, uh, there's music playing. Um, So how do you replicate that digitally? And then also, how do you marry those two experiences together was really what I was targeting, right? Because the modern customer is in all different channels. We see them sometimes 3 or 4 different channels and it's fluid, right?

They go in between them. So. My goal was really to figure out what can we do with this great asset that we have to expand that experience for our customers. So immediately, the first thing was Bopus, buy online, pick up and store any retailer our size should have that. So I started with our design agency, and we all got in a room and said, What do we like as customers?

Let's put our customer hat on and say, you know, where did you shop recently? What was an experience you had? That was great. Uh, I'm a firm believer that you don't need to reinvent the wheel. Uh, you can get inspiration from all different places and then just apply it and test it and see if it works. So we did that and, you know, we talked about Best Buy and Home Depot and Target, uh, couple others.

Right. So. It came, what came out of that was a design and the functionality that we're happy with, and we built it. We went live with it a couple of years ago. Our customers immediately gravitated towards that because experience is great. So, uh, that's been really successful and our customers can buy online, pick up in store, they can return store, we're giving them more options to be fluid in between our channels.

Uh, so that was one, uh, strategy that really worked great. Another one was shipped from store. We had to really build out the technology piece to do that. So, uh, what that means is, uh, when a customer buy something on the web, the system in the background is using AI and it's, it's an automated process that decides what store has the inventory to do a ship complete and put everything in the same box.

And then it sends the order to that store. And it's usually the one that's closest to you, uh, that has the inventory. So. There's two mechanisms, right? There's the speed to delivery and then there's profitability. Uh, we need to know, like, we want to put everything in the same box. We don't have the shipping rates that an Amazon or a Walmart has.

So, uh, it's not as profitable obviously to send two different packages, but if the customer buys it and that's the only way we can do it, then that's how we do it. So, um, that really helped with inventory optimization too. Uh, same with bogus, right? There's things we sell in the store that we weren't selling online.

So now we have lots of different SKUs that we can add to the site to expose to the customer that they can buy. And this is really all seamless to them. So they go in the cart and they can say, I want this thing delivered because I don't need it right away. But, you know, this food that I need for my dog, I need it today.

I got to go pick it up. Um, we also added same day delivery to that mix too. So you go on our PDP and it shows you the three options. And then it's checking inventory real time to see which ones are available to you. And then you just pick which one it is and try to make it super easy and convenient. 

[00:08:33] Jon Blair: I love that.

I mean, there, there's a lot to unpack there. One is the profitability enhancement of the ship from store, right? And so you're almost kind of. In my mind of likening this back to the DTC world, you're looking at your 200 plus stores and that's like your 3PL fulfillment network, right? And so you're going and looking for the most optimal place where you can get a ship complete.

I love the ship complete because it's like, that's a customer experience thing, right? Like not, I mean, and, and a profitability thing. Yeah, you're, you're, you're making sure that everything's going in a box, but that, that order is getting fulfilled in full. Right. And, um, the other thing is like meeting your customer where their need is, right.

That like, sometimes they can wait for it to get shipped. Sometimes they can't and honestly, I'll even tell you like using a grocery store as an example, like covid forced a lot of people to start doing curbside pickup, right? Grocery stores, obviously, like, you know, really accelerated that for grocers.

When I go into a grocery store now, I actually hate it because I can't remember where everything is. I have a list and like, I end up buying a bunch of stuff that I don't need. And like, it's actually just being a dad of three little kids and having very little time. It's actually a lot easier to just put the order in on the app.

Know exactly what I'm getting, how much I'm spending, what time I'm going to go pick it up. Right. And so like, it is also too, it's not just about profitability. It's also just about streamlining the experience and meeting the customer where they're at. And that's one, like. There's been kind of this theme of several people that I've been talking to for the last few weeks.

One was actually Renee, who you and I both met in Ireland. And we, I've been talking with a few people about retail brick and mortar retail. Cause at some point a DTC brand depends on the product category that you're in. It depends on your goals. There's only so big, there's only so much addressable market, DTC only.

And it varies based on your product category. Some product categories, if you want to grow to a certain size and top line revenue, you do need to get into physical retail sooner rather than later. Others, maybe you can get up to 50, 60, 70 million, but there are very few nine figure DTC only brands, right?

And so, If you have big sales goals, like hear me out on this audience. Like if you have big sales goals, you need to be thinking about some of the things that Matt is talking about. Some of the things we talked about with Renee a couple of weeks ago and talked about with Adam Siskin the week before that, how can you integrate physical retail?

Into your channel mix at some point. What's interesting is Renee talked a couple of weeks ago about like, Hey, look, you don't necessarily have to get in with a retailer like target or Walmart or something like that. You can set up one of your own shops. You can do a pop up shop. You can, you can test out doing a few of your own single brand stores.

And then you've got, you can bring in some of the tactics that Matt is talking about here, right? If you've got yourself a network of single brand stores, you can think about how to seamlessly integrate the, the digital, um, you know, your Shopify store or whatever you use for your DTC, um, storefront with your actual physical, uh, retail storefront.

I, I've got a question for you that kind of came up as you were talking through some of those tactics. What have you found? That was surprising in terms of what products work better in converting digitally versus in store. Like, what are some of the trends that you saw there as you were, as you were testing out, giving people the ability to, like, get them shipped versus pick them up?

Uh, 

[00:12:13] Matt Ezyk: I think the interesting thing was how, how much the, uh, individual cans took, took off, right? Because this is probably typical in any retailer that sells cans and cases, like a You know, like sometimes like a vitamin shop or a GNC selling energy drinks, right? It's the same concept where in the warehouse you're selling the case skew and then in the store you're selling the each's 

[00:12:36] Jon Blair: And yeah, 

[00:12:36] Matt Ezyk: you know, we have that with dog food and cat food Uh, we started to expose the each's Inventory onto the site and that really took off because there's there is no way for a customer to go onto our site And by each is before, um, there's also products that we, at least at this point in 2024, we're not able to ship.

Uh, to a customer, but with DTC and for example, like frozen, um, uh, raw dog food that we sell, uh, goat's milk, like all these things that are fresh and frozen that we sell in our store, wildly popular with customers. But until we figure out how to have cold storage in the mid mile and then deliver last mile, we, we can't sell those.

Right. So we're exposing them, uh, onto the site from an inventory perspective and customers see that. And they want to buy it and they're just looking for ways to buy it. Obviously the grayed out pieces, the ship to home, but you can get it delivered same, same day. You can pick it up in store. So just exposing more of that inventory.

It's interesting to see the customers gravitate towards the different products we can now sell. And those are the two, I think that have been really successful for us that we couldn't sell before. 

[00:13:51] Jon Blair: You know, I'm sure. I don't, we, maybe we talked about this in Ireland or not, maybe I'm having deja vu and it's a real thing or maybe it's not, it's just coming to mind right now, but, um, cross channel bleed over and attribution issues, right?

Like I am certain, especially based on what you're saying, you were just saying you're advertising digitally. Not everyone buys through your. Your, your storefront, your digital storefront. Have you seen any sort of lift in store that you feel like is attributed to, um, what you guys are doing on the e commerce side?

Have you guys talked about that internally? What, what have those discussions look like? 

[00:14:35] Matt Ezyk: Absolutely. I think as an industry standard, you see typically 20 percent of customers that come in to pick up an order. Are buying something else, whether it's at the cash wrap, or they're going into the store and buying something.

So our results are typical to that, right? So I think it's probably the same across most retailers. So, yes, you're driving more traffic into the store, more awareness into the store. In the case of like an Instacart or a DoorDash, we purposely didn't market there because we wanted to see what, uh, what customers are we finding that are finding our brand organically and buying from us that didn't before.

So how many are we gaining without even talking to them from a marketing channel? And it's pretty staggering. Like, it's, it's a significant lift in the customer acquisition and revenue that we're generating from these channels because it's just another way where customers Like if you buy, let's say you're buying a Purina ProPlan bag of dog food, it's the same bag, the same flavor that you get for your dog.

For anyone listening that has a dog, you know changing food and flavor is difficult. Um, if your local store doesn't have it, or grocery, or wherever you get it, you can go on the Instacart app, or DoorDash, or whatever it is. And type in that, uh, you can type the SKU, you can type the name of the food, and if you find it, you're gonna buy it, right?

Like, if you need food for your dog, you need it. So, that's gonna expose you to our brand, where you may have not seen us before. Uh, probably not the case in Florida, because we're everywhere in Florida. We're like the Dunkin Donuts of the Northeast, if you're familiar, on every street corner. Totally, yeah.

We're like that in Florida. So, um, not the case in Florida, but maybe in a Texas or the Carolinas or Tennessee, you may not be familiar with our brand. And, uh, if you're an Instacart user, then you'll, you'll see it pop up. And then if you have a good experience, you'll come back. 

[00:16:33] Jon Blair: That's interesting. That makes me think like, what, what, did you find anything surprising in, you know, because before your physical brick and mortar retailer, right?

So like your TAM is, People that live in those geographic areas where the stores are. Was it surprising at all? Like what kind of geographical reach you guys were able to expand into once you really started humming on the e commerce side? 

[00:17:00] Matt Ezyk: Yes, uh, I think some of the interesting things that at least I found coming into the business was we have pockets of the country that are not only the most or some of the most orders that we get from digital, but they're also our most profitable products, which was which was super interesting.

I, I. Later found out that, uh, you know, we have, uh, uh, a sister company that's owned by our same private equity that, uh, once they bought both of us, they cease their operations in the U S and they only operate in Canada, but it's a pet value and their headquarters were in Pennsylvania. So of course, there's lots of people that are buying our private label food in Pennsylvania.

Uh, didn't make sense to me when I first came in and I was like, we have no stores there. Why is there so many people buying this? But. Um, so we had to figure out a solution to make those orders profitable, because it's really challenging for us. Like, we're an old business. We're like, 51 years old, and we have all of our D.

C. S. and South Florida, which, you know, back in the 70s, I'm sure that was great or the 80s whenever they built them. But in 2024, right? It's not. Not good. So if we're sending a lot of orders to a state like Pennsylvania from Florida, it's very hard to be profitable in those transactions. So now what's happening is our North Northern most stores in North Carolina are servicing those Pennsylvania orders.

So the system sees, okay, you know, Jon Smith is in Pittsburgh, PA, and he ordered this bag of food. This store in Wilmington, North Carolina has it. We'll send the order to them. They pick, pack, and ship it and send it out. 

[00:18:40] Jon Blair: Very cool. Very cool. So to summarize for the audience really quick here, what we're talking about is the seamless integration, right, of physical retail locations and an e commerce advertising and storefront strategy.

There's absolutely a place. for digitally native brands to get into physical retail and think about how to bring those experiences together. The question is, when is the right time? There's nuance to that specific to your brand and your goals and your capital needs and capital structure, but definitely some really cool tips to think about how to marry, marry up those two, um, sales channels.

And use them to drive new customer acquisition. That's also optimized from profitability standpoint. So what I want to now kind of switch our attention to. Talking about AI and although this might seem like kind of a 180 degree turn here, the reason why we're talking about this with Matt is because again, working for a bigger, um, kind of enterprise level retailer.

What I've found is that, uh, a lot of AI tools. AI is this hot topic, right? Um, especially in the marketing world, but a lot of brands in the lower to middle market that we work with are not leveraging AI and I've kind of had this ongoing question of like, why, why is that the case? I, I personally believe that one of the reasons is because, uh, it's really gaining traction with the larger enterprise level, uh, brands out there.

They have. Bigger budgets and they have just really kind of like, and I also think the AI tools are from a go to market perspective are focusing on those, that larger customer base first as well. Um, and, and so, like, I think there's a lot of interesting stuff happening in the AI world that the. The lower to middle market DTC brands are just not getting exposure to right now.

And I had some really interesting conversations with Matt when I was in, uh, Ireland about several different things that he has tried and is trying and that have worked and have not worked for him, um, at pet supermarket. And so, you know, Matt, what I want to ask you next is like, what are some of the specific AI tools or apps that DTC brands that are five to 65 million in revenue, maybe unaware of that you've come across.

[00:21:06] Matt Ezyk: Yeah, it's a good question. There's just so much noise and AI. So, um, I can speak generally about a couple areas where I think you might want to target. So, uh, the first one would be, I would think ad optimization, right? How do you optimize your digital advertising campaigns across multiple platforms like Google and meta?

Uh, I recently saw a tool called a dexed AI that does that. I think pretty well, uh, not something I've used personally, but. I do a lot of research on the, on the topic, obviously. So that was an interesting tool for ad optimization. Uh, my favorite use for AI is personalization and recommendation. And, you know, you see tools like dynamic yield and segment that personalize experiences across the web.

Um, you can use it in mobile, you can use it in email. in store kiosks, uh, which is great for retail fashion, for example. Uh, I really love the tool called Discoverist, which does, uh, AI generated bundles. It learns all sorts of information about you when you go on the site, your clickstream data, what you've ordered, and then it puts together bundles for recommendations on the Uh, on the site.

Super clever. That is really cool, man. 

[00:22:16] Jon Blair: What's it called? Discoverist? Discoverist. Yeah, that is rad. I have not heard of that. I'm gonna have to check that out. 

[00:22:21] Matt Ezyk: Yep. Um, email marketing automation, right? That's a great one. So you can personalize email content based on the user's behavior and preferences. So if, uh, if I know that a customer has bought cat products or is clicking on cat products, Uh, categories, we can reasonably assume that they have a cat and then we can really tailor the communications that we have to cat owners, uh, active campaign is a, I think for SMB is good for that type of thing.

Customer feedback and sentiment analysis is super great. When you're trying to grow or the scale of brand, um, you can really understand your customer feedback and analyze the reviews, the surveys, social media mentions. Um, in the S. M. B. Space, I've not used it, but I've heard that monkey learn is a good tool for that, too, that I've seen out there.

Um, and you know, there's a lot that I'm using with Salesforce that does that. But, uh, pricing optimization is great too for AI. Like you can use pricing optimization tools to set competitive and most importantly, profitable prices based on market data and customer behavior. Uh, so there's companies like black curve and quick lizard that do that.

And then I think lastly, I'd mentioned, uh, a CDP, so a customer data platform. So, something that consolidates and analyzes all of your customer data from all the various sources you have. Uh, there's a company out there called Treasure Data that is really interesting that 

[00:23:52] Jon Blair: does that. Yeah, that's really interesting.

The personalization one is something that I've been really keen on, on thinking about. And I, I think it's a, Personalization is something that I think a lot of D2C brands should pay more attention to. Yes. Because when you think about the dynamics of profitable, uh, customer acquisition, if you're scaling a D2C brand, you've got these two revenue streams, right?

You've got first order acquisition and the profitability on that first customer order, and then you have repeat purchase, and personalization. Has a place in both of those revenue streams in terms of enhancing conversion rate, because you're, you're hopefully more frequently speaking to a customer about you're meeting them where their needs are at that point in time, right?

And, um, yeah, I know back in the day before AI was like, as it was a hot topic, like at Guardian, one thing that we did is. We just did some kind of like manual personalization where we had I believe a post checkout survey Or it was a question in our welcome email Series once post purchase or when you signed up for our email list and it would ask you like Basically what it asks you is that is your kid has your kid ever ridden a bike before?

Have they had their first pedal bike or have they had their second pedal bike? And what those three questions told us was likely, would they be in the market for a balanced bike or a child that would normally maybe need training wheels? Would it be one of our, uh, our. 20 inch bikes or would it be one of our 24 inch bikes?

And the reason why that was important, you would think it's just because we're going to pitch them that specific product. It's not, it's because what tips do, uh, what tips do a parent, does a parent need if their kid has never ridden a pedal bike before tips on how to, how to ride a bike, how to get rid of the training wheels, right?

There's like a certain, there's a certain journey they're on at that point in time. Um, if it's their second pedal bike, it's stuff about. local trails to go ride on, great places to go on family bike rides. Like it's a, it's a different journey that that customer is on at that point in time, and when you are delivering personalized content and which ultimately lead to personalized CTAs.

You're just going to have a much better chance of converting that person at some point. And so, um, so in personalization is a huge one. I haven't personally used any of these AI tools. I can help with that, but I highly recommend brands consider doing some research out there. And like, here's the other thing too.

I want to talk a little bit about like, just, you know, brands getting stuck, blocked, trying to implement AI. We had an AI discussion, um, like a round table discussion when we were on that Ireland trip together. And like, one of the things that really stuck out to me was that you and several other people on that trip were just like, Hey, find your version of just test.

Test learn, right? What, what are some of your, what, what, what's like, where's some of the areas that you see people get stuck or blocked and what's like your advice for just getting started? 

[00:27:09] Matt Ezyk: Yeah, like a quick point on the, what you were just talking about with personalization. Uh, a lot of people shop businesses, especially fashion retail, and they don't know what they want.

And I think everyone listening has probably had an experience with a brand in their life where it's just really fun and cool to shop them, even online, right? You get this, like, excitement of buying something. Um, so, like, fashion's a great vertical for personalization, right? Because, like, let's say, for example, um, I'm Jon Blair and I'm going to a wedding.

And I want to look super cool and sharp, but I don't know what I want. And maybe I want a suit coat, I don't know. And you go on to a site and you look for that coat, and then it shows you a shirt and a pair of pants and a belt and shoes, and you're like, that's awesome, I didn't even know they sold this, I didn't know what goes with that, right, I don't, I don't know what I want, but it's showing me something that I want, and then I buy it, right, so that's really where AI comes into play, and specifically that Discover tool I mentioned is super cool because it does something like that, it's learning what categories you're clicking on, uh, what you've ordered in the past, what other people have ordered, And we've been able to do this in retail and e commerce for a long time with predictive AI, like over 10 years, and it's very powerful.

The generative piece is now it's learning and you're teaching it, and it's giving different results based on what it learns. So it's super cool. So I just wanted to make that point about the personalization. Um, That's pretty cool. And was so 

[00:28:36] Jon Blair: actually funny enough. So, you know, Mark Cuban was an investor in guardian bikes, the brand that I was on the founding team of, and he, um, was really bullish on Netflix when Netflix first, uh, launched and he actually had a sizable stake in Netflix.

If I'm not mistaken, I don't know if he still does, but I believe he did. And he used to talk a lot about why is Netflix going to crush it because people don't know what they want to watch and Netflix is telling people what they want to watch and I actually even think back. I know you'll, you'll kind of like laugh when I say this.

I think it back to when YouTube first started and like everyone our age, like when you're in like junior high, However old we all were when, when that launch I, but I just remember being in junior high and just getting like lost in the next video recommendation on YouTube. Right. Yeah. I mean like, going and talking about it with all your buddies at lunch hour or at recess and being like, dude, did you see that video?

And like, But, I mean, that all was that kind of, you know, predictive recommendation driven, you know, you know, or AI driven recommendations is like, and it just got you hooked, right? And like, you didn't have to search for the next video. You just kept watching the next one that came up, right? And so, like, just a super great example and something that Mark Cuban has always said.

has has always talked about that. Like, hey, man, there are certain some people know what they want, but a lot of people don't know what they want. And so to the extent that you can help them figure out what they want, you're going to convert a lot more sales. So, um, great 

[00:30:13] Matt Ezyk: example. Yeah. And that kind of leads into what the second question that you asked here about.

Like where do customer or uh brands get stuck or get blocked? I mean really the the main thing is like is this going to help your customer or is it going to help you? Be operationally more efficient or more profitable Then yes, then explore it. If not, then why why are you doing it? Right? There's There's so much, I feel like there's so much panic in desperation and AI right now that people are just rushing to do something.

And they lack like a clear strategy and clear goals. Uh, so really just how does this help the customer, right? It's very simple work. Start at the customer and work backwards and then figure out, you know, scale and profitability. Um, I think where people get stuck is the first and foremost, the lack of, Data in the, you know, the, the integration steps, right?

If you're, if your data is poorly, um, put together, the quality is not there. It's fragmented. Your results are going to be very, uh, sparing, right? It's very difficult to implement anything that relies on that if it's not set up correctly. And, you know, I, I've seen this with predictive AI, right? Like I mentioned, I've been using predictive AI for over a decade.

Um, I have that on my site right now. Today. It's it's worked really well where it recommends products and shows products that other people have purchased, right? The, you know, the FOMO factor is real. So customers see that and like, Oh, if someone else bought it, I should buy it. And it, it works really great.

So, um, that's a, that's a big piece of it. Uh, the technical resources in. Uh, expertise to implement it correctly with as little technical debt as possible is super important. Um, we talked about costs, ROI, that type of thing. Um, if you don't know why it's helping your customer, then you need to step back and figure that out.

Uh, change management, organizational buy in, right? Everyone that is in your organization that has a stake in the success of it. Everyone should understand what you're doing and why and when. Um, I think a lot of people, again, they, they see AI is a new shiny thing and they're like, oh, I need to do this.

This isn't this. And they're not taking a step back and figuring out why they're doing it. And then sharing that and getting feedback from the organization, uh, probably more, more of a, uh, uh, an issue for the mid market and enterprise because there's so many stakeholders, but still important for everybody.

I think, um, how does it integrate with existing systems? Um, yeah. Couple other things like, uh, who is understanding and interpreting the outputs of what's happening and how to tweak it. Um, and then you can get into all sorts of things like privacy and ethics and compliance and maintenance. And it's, it's a very complicated thing that I think people take a little bit too lightly.

[00:33:04] Jon Blair: Well, it's funny, you mentioned a couple of things. You actually mentioned several great points that I hadn't necessarily thought of that kind of a light bulb went off and I was like, Oh, I see very clearly why so many brands in the lower to middle market are not getting AI successfully implemented based on what you were just running through.

One of them is like the data storage, right? I mean, almost every brand that we work with has data storage issues. I mean, even to the point where like the transparently free to grow is trying to figure out how we, we can provide a service. To help these brands warehouse their data. And it's just because it's, it's because we need the data as well on the CFO front.

Right. And data that's not stored properly, um, or isn't clean or is fragmented or whatever, um, it makes it hard on several different fronts in terms of reporting and analytics, not just launching AI tools. And I think the other one that you mentioned is like. Having the right technical expertise to implement said tools, right?

And it's funny, I have a good buddy, Justin Mitchell, who's, uh, runs a, uh, a site called CodingForEntrepreneurs. com And, um, we've been talking about, he's been kind of asking me like, Dude, should we get something started where we actually go out there and like, and help brands get AI implemented? And And I, I think there's actually like a real need there.

Cause I think everyone wants to do it. But again, going back to like, they going using the personalization kind of, uh, um, you know, metaphor again, they don't know what AI they want or need. They, they like the concept of it and they, they generally understand how it can help the customer journey and how it can help their business, but they need to be served up right?

A package of like what AI tools are going to work for them as well as a plan for like how to get them implemented. And I think the other thing too, of course, like everyone's talking about chat GBT, I'm not going to talk about chat GBT for, for too long here and just be another person that's. Popping off about that.

But like, I think one thing that I have learned from you just in our conversations is like, You can't just give chatGBT, just get output from generative AI and just go like, okay, perfect. That's, that's the result. I'm going to take it. You have to know how to work with it and to continue to feed it with more and more data so that it gets better and better and better.

So it is not an end. It's a process. It's a journey. And so you almost have to be with generative AI from my perspective. It's like, you gotta be willing to go on the journey. Right. And like not worry about the end and more, more be worried about like, every time you're feeding it more, it's getting better.

You're never going to be there. Right? And quite frankly, that's the whole point of generative AI. You're never there, as long as you're feeding it more, right? And so, like, you almost need to just get, like, excited about being on board with the journey. I talk to a lot of people about content marketing, because that's, um, a big passion of mine at Free2Grow.

And people are always like, dude, content marketing, it just seems like a lot of freaking work. And, like, it doesn't really return that much in sales. And I'm like, it does. But it takes time and you have to be one. You have to get into content because of the journey, because you just want to be helpful because you just want to get information out there that is actually helpful and entertaining to people.

Understanding that sales and like positive economic impact will come, but that's not the reason you're doing it. You're doing it for the journey. Right. And I kind of feel somewhat conceptually the same way about generative AI is that like. Look, you start with like what Matt said, how can you help the customer, right?

And then how can you help your company's efficiency, but get into it with the mindset that it's going to be a journey, right? And not just expect everything to get blown up and. Changed overnight, but to be on the journey with like bringing generative AI into your business, what, what do you think about that?

[00:37:15] Matt Ezyk: Yeah. Just to comment on something you said that I think will put a lot of people listening at ease, especially if they're in the SMB world, I've worked with hundreds of brands and retailers in my career, uh, from the, from the beginning. Five million a year to billions a year that they all have one common problem is that their data is messy Uh, I haven't come across one that had that did not have issues with data some worse than others Um, so I think it's it's normal, but you also have to work to continuously make it better.

So, um That that's a pretty normal thing. So as far as uh talking about Like how to use generative tools and just AI in general. You're absolutely right. Like there's, there's two points that I think are really important. It gets you 80 or 90 percent of the way there. And you need to add a human element to it.

Um, and this is really coming from learning how to write good prompts, right? So if you're talking about, uh, chat GPT, not only learning what to ask it, but also ask it if it understands you. And that was a really great breakthrough for me is that when I was asking questions to chat GPT, and then I would tag it at the end and say, ask me any clarifying questions, if you don't understand.

I would get much better results because of that. And you can apply that to AI tools as well, but it's really, when you're talking about chat GPT, um, that's been, that's been really great. So, um, you can use this tool for all sorts of things. So, but it's important to have the human element so you can do.

Content you can do analysis, uh, with AI, but you need to use the human element for strategy and then for adding your own voice. So, uh, when you're writing, uh, content, you need the right brand voice. You need the right authenticity. You need to measure and iterate what you're doing. And I can see that in LinkedIn, man.

Like, I, I see, like, there was someone respond to me today that I didn't know. And I can tell if it's written by Gen AI. Oh, for sure. So. For sure. I use it for ideation all the time, right? Like, I'll be in a meeting and I'll have a question, but instead of using Google now, I'll type it into chat, GPT, and then have conversations with it.

It took a while to get comfortable with that. And that's another, I think, really great point when you're talking about SMB, DTC, uh, businesses or retail businesses, you need to understand that customers don't know they can use this yet. I mean, even, you know, folks like you and I, who are learning about this all the time, I wouldn't go to a brand and instinctively think that I could use, Something with like generative search or whatever it is, you need to show the customer that they can do it.

And a lot of the ISV companies out there, even the bigger companies like Salesforce, I think fall into that trap where they're like, okay, we did the, the thing with AI and it's awesome. And I look at it and I'm like, my customers are not going to know how to use this, like how to bridge that gap. So yeah, interesting topic.

[00:40:16] Jon Blair: Very cool. I mean, There are several things there, um, you know, that are super applicable to using AI in the lower to middle market. And again, like to recap the whole point of this conversation and why I think it's super useful for DTC brands that are between five and 65 million a year in revenue, which is primarily.

You know, the types of brands that Free to Grow CFO works with merging physical retail and digital advertising. So there's totally a place in this as you scale your brand from a profit focused mindset. AI, hot topic, right? There's lots of ways to leverage it to improve customer experience and ultimately the bottom line impact of the business getting improved as well.

But You don't have to dive in head first, right? It's so many things as is with so many things of scaling a DTC brand. Figure out where it fits into your strategy. Don't start any of these things without a strategy. Figure out where it fits in your strategy and then figure out something small. that you can test and learn with.

Right. And, um, you know, whether we're talking about whether I was talking with Adam Siskin a few weeks ago or Renee Hartman about expanding into retail, we kept talking about what's something small that you can test first, right? Get your feet wet. And, you know, if you get into this, this rhythm of test and learn, test and learn, test and learn in these, these two different areas we've been talking about today, you'll be surprised how, you know, a year from now, two years from now, five years from now.

How much progress you will make in these areas and hopefully what we've talked about here today gave you some tangible like jumping off points of like, Oh, I'm gonna go try that thing that Matt talked about. And it's just it's a place to get started. Right? Um, so before we land the plane on the conversation, I would like to talk about something personal because, um, the balance between personal and work life is a huge guiding principle of Free to Grow CFO.

It is, is that the core of who we are as a business? And so I don't ever want to have one of these episodes without talking, um, to our guests about something personal. I'm going to go a tiny bit off script here. Matt and I have something in common that I don't have in common with. Probably, I'd say most of our guests, we're both musicians and both have been touring musicians before and, um, you know, I still play music to this day.

I think Matt does as well. We don't necessarily do it professionally in the same way. But, you know, Matt being in entrepreneurial, uh, being entrepreneurial in the business world, but also being, I call it being in a band is Pretty damn entrepreneurial. It doesn't get any more entrepreneurial than that. I always say, you're a paid content business, right?

And, um, going on tour, you're not just selling a service, you're actually marketing your business and getting it out there. Hopefully you're selling apparel and paid content being your music, right? Being in the entrepreneur world of both music and business, Um, or retail, what, like, what has that experience meant to you?

And how have you been able to kind of sharpen yourself in those different domains by, um, being kind of a dual entrepreneur? 

[00:43:33] Matt Ezyk: Yeah, interesting question. Um, I mean, what I've learned from music is that there's so many similarities when you're, you're marketing something, right? In this case, it could be, um, whether it's a, you know, a bar band local that plays local, or you're touring, uh, original act and you need to produce content that's, that's creative, engaging, and you're consistent with it.

Uh, you need to have a good product and that's not just the recording that you're putting out. But if you're actually going out and playing live shows, like you need to have the right equipment, the right sound, consistent sound. I mean, I've, you've probably seen this. There's so many bands out there when you go out and you see, and they're, they're too loud or their sound isn't good.

That's the same thing is like any kind of business that you're marketing, you like, get your. Um, you're damaging your product that way. So there's so many correlations to that that are interesting. Uh, I think another point too, that is really interesting when it comes to the business world and when you look at music, especially my role as a, as a bass player, I played professionally and it's so important to, to listen.

To your, your bandmates and everything that's going around and being able to react to it, like whether it's a, a change you didn't expect or a mistake, uh, there's, there's been a lot of times. And for those of you who play music, you know, if, if, uh, if everyone in the band is playing something wrong and you're as a bass player is playing something right, you're perceived as playing it wrong because it's the bottom end of all the sound.

So there's been a lot of times where like, I've been right and everyone else is wrong. But I need to change to make sure everyone else sounds good, right? If it's like you're in a different key or something. So there's so many similarities that you can flip back and forth to the, to the business world. Uh, but I think it's really being, uh, dynamic with your, your marketing and your product and making sure that it's, it's consistent.

And then just real like soft skills with people and just listening and And having the, the, the best interest of everybody at 

[00:45:38] Jon Blair: heart. It's funny because like, you know, I would venture to say this is probably the case with, for you too, musicians. We get into trying to play professionally cause we just love it so much.

And then when you get there, you realize like. On the business side, the best bands are great marketers. They are in their own right. Like if you think about a band like Kiss, right. And like the showmanship in their shows, that is marketing 101 right there, right? Like Kiss is Kiss and a show with, even if you don't like the band, I know so many people are like, I don't like their records.

But I saw them live and it was incredible, right? And cause that's, that's part of their marketing. And like, um, that just kind of leave us all on this note, this is kind of off topic, but it's something I talk about a lot of my content and I talk about a lot with the brands that I serve as a fractional CFO, the most important thing in your business is marketing.

There, there's a ton of other things that are important, right? And, and, you know, you, you've got to have solid operations, you've got to have solid finance, but like marketing is the engine that drives the plane, if you think about a DTC brand as a plane. And so, you know, just don't ever let up. On just being laser focused on your marketing because when marketing works, yes, you need operations there to support it and you need finance there to support it.

But when marketing fails, those other two things, those other two functions in the business can't be funded. Right? And so just don't ever forget that, uh, whether you're a musician or running a DTC brand, you marketing is, is your top priority as a founder. So, um, Look, uh, Matt, before we, uh, land the plane here, where can people find more information on Pet Supermarket and on you personally?

[00:47:23] Matt Ezyk: Yeah, sure. So we're at PetSupermarket. com and you can find the products to buy online there and have a store locator to find all the great stores. I'm on LinkedIn. Uh, you can just search my name there. It's spelled easy YK. I'm also on Twitter, but not as much. LinkedIn is usually the good place for me.

[00:47:41] Jon Blair: Awesome. Definitely check out Matt's content. He's got a lot of really great stuff and you'll, you'll see me poking around engaging there with him, uh, frequently as well. Um, well look, if you want to find more helpful tips on scaling it, a profit focused 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 CFOs can help. Your brand scale alongside healthy profit, cashflow, and confidence. Consider checking us out at freetogrowcfo.com. Thanks for listening this week and until next time, scale on.

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

~~~

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
~~~~~~

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