Taylor Holiday - The 2026 E-Commerce Masterclass That Will Make You Question Everything

I had to lay off 100 people in 60 days. It was the worst time of my life. And now, three years later, we're 50% larger than we were at our peak with half as many people. Haleur Holiday is a data obsessed e-com operator and founder of Common Threat Collect. They have helped scale brands past $3 billion in revenue by turning paid media into a disciplined profit-first growth system. Our industry has collapsed around the worst creative strategy idea, which is iteration. Making ad, look at the results, create a change, iterate, iterate, iterate, iterate. There needs to be some effort that goes into creating stories, not iterations on ad hooks. The question I always ask is, why does someone need to buy this right now? Not why do they need to buy it? Why do they need to buy it today? And the more that you can answer that question, the more that you're going to create leverage against that market price. So you've managed hundreds of millions of dollars over the last decade and you've built a proven system to scale profitably. Let's get into it. What is the profit system? The idea is we want to generate predictable profitable growth. E-commerce is a business that if you want to make money, it's predicated on buying inventory at some expectation of selling through that inventory within a fixed time period. That predictability is what drives money into your pocket. If you're wrong about the estimations on the inventory side, you cannot produce money in the bank account. And so our system is one begins with FPNA, so financial planning forecasting. That's what we've spent the last five years doing for brands. Last year, we forecasted $3 billion within 4% of target. So our job is to help brands decide how much volume are we going to do? To set that expectation, build organizational alignment, build a media plan that flows into that financial objective and then track performance to expectation every single day. We'd like to say that great forecasting is an exercising execution way more than it is in modeling. So we have to set the target and then every day we have to make it true. What's up guys? It's Mark, Taylor and I put together a playbook that distills all of his principles, frameworks and lessons all into one free PDF. You can download the playbook below, link in the description. Enjoy the rest of the episode. Let's simplify that down as much as possible before people out there. So you just, in short, it's finance meets marketing meets products. That's right. Yeah. At the end of the day, that's what business is. It's the combination of ops, finance and marketing. So what business is struggle with is often these things are siloed. They exist in disparate areas. And so we'll walk into an organization and finance has built a forecast that's independent the marketing calendar that has no consideration for the effects of volume on CAC. So I've walked into Fortune 100 businesses and seen as CFO with elite skills have a financial plan that has spend increasing 50% in CAC holding constant. That's not real. That's not reality. And so we have to first bring a line meant between what is the marketing plan? This is actually where financial forecasting begins. Any commerce business, we call them units of growth. You make money when you launch an ad, you send an email, you do a post on social, you get an influencer to do something. These are the things that drive revenue reality. So you have to build a plan that says, okay, what actions are we going to take and then what will that affect beyond revenue? And the intimate interaction between your marketing calendar, a qualitative plan, and then financial modeling around spending efficiency curves, cohort specific LTV analysis is the financial side. You bring those things together and that's what does not exist in most e-commerce brands or businesses generally. Oh, in short, so you would actually say that the marketing department should be leading into commerce as opposed to the finance. That's right. I think that the financial forecast for the organization in a consumer product business should come out of the marketing department. Because here's why imagine last January, we launched a new product, cool new t-shirts, mugs, whatever it is. Now this January, if I'm the finance department absent the marketing calendar and I go to build a financial plan, I go, "Oh, January was awesome. Our efficiency was A, our volume was B. I'm going to replicate that on an extrapolation of the historical analysis." But then I go look at the marketing calendar and you know it's not there, that product launch. It's gone. That action that created that reality doesn't exist anymore. So if you don't tie these things together, what did we do that generated this outcome? What are we doing now that's also going to replicate or expand on that outcome? You will end up with an expectation that doesn't align to your behavior. And one of those big things that you are doing, it's launching a new product. It's filling a new type of creative. What are those kind of big buckets that drive those initiatives? Product releases, promotions. These are the things that generate peaks generally inside of businesses. Those are the two largest. So most obvious ones to extrapolate off of our Black Friday Cyber Monday. Everybody does that, right? That's the one we all do in the industry. Then for some business, there's usually a secondary peak. Maybe it's Fathers Day, maybe it's Mother's Day, maybe it's Valentine's Day, depending on these cultural tenants that are built in. But then on top of that, your business has some rhythms. We work at the business that every summer does a capsule collection and they have a product launch every July. So that's a built-in rhythm or pattern of the business. And then on top of that, you layer in a series of other actions. Maybe last year you had a big PR hit that happened in February where a cool influencer did XYZ, right? So these moments, these actions that got created the generated revenue on the macro level. So those are big things. And then on the little level, every day you send an email, you send an SMS, you spend money in the ad account. Those are the individual units of growth that drive some expectation of future value. In most businesses, they large email and SMS is a trigger for driving existing customer revenue demand. So if I look at my calendar and I look throughout the week and I see, okay, how much revenue did I do, you're going to recognize that your existing customer revenue goes up on the days you send email and SMS. So as you go to forecast, you can't build the expectation of the flow of that revenue without the email plan, right? And that's just a microcosm of the marketing calendar, right? Email and SMS sends schedules are a micro portion subset of the broader email calendar that has to align to create a daily expectation of the financial reality of your business. Let's keep breaking that down. So it seems as though there is a marketing calendar with product, with promotion. And then from a content perspective, there's every email, organic, that's right. Every email, every SMS, every paid media post, every organic social post, every website change, every PR hit, everything that you're planning to do as a business, to the best of your ability should be mapped out. We call it, we have three models that govern our financial planning process. One is what we call a spend an AMER model. This is the relationship between your media budget and the efficiency of new customer acquisition. AMER stands for acquisition marketing efficiency ratio, new customer revenue divided by ad spend. Most people's paid media is an effort to drive new customer acquisition. And if you were to map out, we use linear regression models, a combination of models that looks at the historical relationship in every month between your spend and your efficiency, and you build a curve, right? Everyone understands generally that as spend goes up, efficiency goes down. The question is the slope of that line. So we help brands to model that to identify, all right, if you were to spend X, you would generate Y efficiency. If you were to spend 2X, what would happen to Y, right? That's the question everybody wants to understand. And we do that with a seasonal effect. We do that with a consideration for AOV. And that gets us our new customer revenue expectation, that model. The second is what we call a cohort specific LTV model. This is looking at every cohort of customers you've ever acquired, cohort fancy word for group. It just means looking at last January, I acquired a thousand customers. They generated how much revenue for me over time. You would take that revenue and you'd map it every month. You've seen these, right? cohort tables, they have this sort of slant, they show you revenue over time. This is my product calendar, marketing counters, so important to understand and know what those changes. Exactly. So for people out there listening, like understanding and knowing that the customers that come in during a sale period, IE November, they may be less valuable over time because they're more susceptible. That's exactly right. So you can model all those curves, right? You look at everyone. Black Friday's every Monday, cohort. How did they do? January cohort. How did they do? March cohort. How did they do? And you can then forecast out an expectation of future existing customer revenue. Okay? So that's like the two, we call it the revenue layer cake. New customer revenue, existing customer revenue. Those are the two foundational pieces of forecast. Now the third one gets to what we're talking about it. We call it the event effect model. Now we take and absorb your historical marketing calendar. Every action you've ever taken from the past and moving thoughts. That's right. So I want as far back as we can. We start with the API endpoints we can access. So we can see every email subject line every time you launch to Facebook ad, every Google campaign you've ever launched programmatically. We can map those as an overlay on your data. It's like a qualitative. You've been around e-con. Google analytics, you should do this thing called annotations. You could click on a date and you would add a little note and you'd say we did this on this date, right? And when we would get partners, I always knew a brand was going to kick ass if they had tons of annotations. Somebody was paying attention to what caused this change in revenue. So we just do that programmatically. We would absorb all those endpoints. And then we ask them because most people keep their marketing calendar and spreadsheet somewhere. We say give us, give us what you got. And what I'll say is that brand's suck at this generally. They don't usually have a very detailed marketing calendar. Some do. But then we look at that and we absorb that into our system. So we have a data platform called statless. We put that in. So now what we have is what we call the calendar report. You can go look at all of your revenue and I can see little annotations of everything you ever did. And on the back end, our event effect model is going, okay, what happened to revenue when you did when you did that product one when you sent that email when you did this promotion? What did that do to the efficiency of your media? What did that do to your existing customer revenue? What did it do to organic demand so that when you go plan that event in the future, we can model that effect in the future. And if you say to me, Taylor, I don't like your forecast. Your forecast sucks. We want to do the better than that. Then I simply say, okay, well, what are we going to do? What actions will we add in the future? And what effect will that have on our expectations of our performance? Because we don't just get to add revenue devoid of an action. There hasn't be something we're going to do that's going to generate that effect. And by building a model of those effects where I can show you a table of, here's every marketing, you actually have a run, here's what happens when you put it on the calendar, we can begin to build a plan to affect the future. Two things related to that. I think having continuity with the team like yours or anybody else is so important because everybody has different systems and ways. How do I know? It's stuff and when you change, it's like net new information and you need to start all over. So I think that's a huge issue. I think secondly, another thing I'd love your opinion on is it's so funny. Like when people are like looking at our company, I'm just like, you really should start in like 2024. You need the story. COVID given iOS, given tariffs. So if it's you won of 2026 and you're talking about this, what's the reality? Like they should be starting during what year actually using that information now. So what you're describing is what makes forecasting one individual business so challenging is because a forecast at the end of the day is often an extrapolation on history. You're taking what happened in the past and you're trying to model it out into the future. And when you have one business, this is why in everyone in between 21 and 2022, died or went through usually an extreme version of trauma because 2020 and 2021 told us everything was going to the moon for everybody. And then it all stopped. Right. And so if you're forecasting in 2021, the data says that we should anticipate some expectation of the future reality that's happening. Now, the benefit of forecasting a thousand brands is you begin to see those patterns emerge that you can apply to the individual business. The metaphor I use with this is are you in the fantasy sports at all? Yeah. Okay. So if you want to build a forecasting model for trying to predict baseball players home runs next year. Okay. Let's use Cal Raleigh as an example. Cal Raleigh is the catcher for the Seattle manors. Last year, he set a record for the most home runs ever by a catcher. Okay. He hits 60 home runs. Okay. If you were to just look at that individual season and make a prediction about Cal Raleigh's home runs in the future, you would likely be very wrong. It's an extreme outlier. And in fact, that's not what forecasting systems do. He's going to have 28 next year. That's right. If you go to fan graphs, right now, which is the best sort of baseball data site on the internet. And you were to look at they have 12 different models that they constantly track the performance of their forecasting. The range of expectation of his home runs, I was just looking at the CO days between 37 and 44. Well, why? Because they have enough history of baseball to regress his performance back to the mean. And so for businesses in our world, this is the benefit that we have. Is that we have the massive database to regress those performances to something more normal. If you're an individual business, though, back to your original question, this is extremely challenging. So what I would start to do, this is the value of someone you have because you have a Jason company is if I have an art company, you could look at seven other art companies. That's right. If you only have two years versus six, you got two years for six or seven companies. And so often in any data analysis project, your ability to extrapolate the data is relative to the quality of the underlying data set. And if you have one brand's data, it becomes very hard to be predictive, especially if that data looks like this, right? Where it's all over the place. It's up. It's down. It's up. It's down. Then you have to begin to do some qualitative work around what was the causal factors that contributed to those moments in environments. I was going to call today one of the hardest things about e-commerce. We're going to talk, I think at some point about this idea of the cash flow of error that I think is coming is that what happened during the COVID thing and what's happened in e-commerce generally is that the growth of categories is not fast enough for the growth of supply of competition. So if you're a business, I was talking today with a supplement company called this morning and they're watching their efficiency degrade. They used to be this massively efficient acquisition engine. And I was like, let's go back and look at that error 2022. Let's go back to the way back machine and look at surplus things, search engines and results pages. Let's go look at the Amazon marketplace. And what you find is that they were, they functionally had a monopoly on a growing category. There were no competitors. Now today, that same search term shows up 50 listings, including people who are cheaper, different positioning to more specific subsets of customers. And so their ability to capture all of the value that they create on a dollar of demand is just diminished. It gets spread out amongst the competition. And so the expectation of efficiency on every dollar of investment can't be the same as it was then. And this is one of the hardest things about e-commerce generally. It's a perfectly capitalistic market where with no barriers to entry, all the profits get competed away. That is just the reality. It is a very fixed set of digital environments that you're competing in. Google search results pages, Amazon search results pages, meta-add inventory. These are environments where when the competition massively outpaces the growth of the category, there is diminishing value capture for everybody involved. And all I need to do is to see one person, when he and the cat are one person with creatine companies, one person with fiber, one person with healthy pet food. Yes. And then all the competition just stacks on. Here's the thing that I think we've all been deluded into a little bit as entrepreneurs. And look, I love Shopify. I think they're an incredible product. But they gave us this idea that lowering the barrier to entry for everyone was good for us. Right? Arm the rebels. Well, the problem becomes if you arm everyone with the same tool, what leverage have I created for myself? Business is an effort to try and create some advantage by which my dollar generates greater leverage of value capture than everyone else. If we're all using Shopify and meta and Google and we're all using the same tools to the same level of efficacy, the competition gets diminished tremendously to the benefit of meta, Google, Shopify that are extracting that value of the volume of growth of competitors. The reality is we you should not want to exist in competition. That's not how you create the most leverage for yourself. Peter, you know, one along. That's right. That's right. 100%. I want to quickly go back to this, the modeling because you said a lot is a lot of a lot of great stuff there. Do you recommend weekly, daily, hourly? I know you do different kind of marketing, mixed modeling. Like what do you recommend? I image huge proponent of a daily expectation of everything that you're doing, not for the sake of being right, but for understanding where you are wrong. This is really important. I think about this phrase, I'll use all the time, forecasting is an exercise and execution. We want to understand where we are wrong so we can course correct. If every day I force myself into the habit of asking, what do I believe will occur on the thing I'm trying to do? You're forcing two really important things. One is you're forcing your team to evaluate what they believe will happen for the action they're suggesting you do. Why should we send this email on a Tuesday? Why should we go do this big promotion? Why should we run this sale? What do you think is going to happen? That exercise of just trying to assign value to the things that you're doing is an important discipline. Then to figure out was I right or wrong and why and what do I do about it? And the reality is that we work in these time bounds in consumer. We work in months, we work in quarters, we work in years. And if you want to win a month every month, you set a forecast you're trying to achieve the number, is that if you know on day five that you're off, you have a hell of a lot higher chance of getting to the end goal than if you figured out on day 22. And so now the tension is you can over optimize towards short term action if that's the case. So daily forecasting with the condition that you need an organization that's working on two separate rhythms. And this is where I think the opportunity for a partner like us or the distinction between the role of your internal team in an external partner or different parts of your organization is somebody needs to be planning the moment in June, the big thing that's coming, the thing that's going to alter the model that's going to break the dynamics, the big product launch, the big story, the cool new thing, and somebody needs to worry about tomorrow. They can't be the same person. I think that's the biggest problem is most people aren't you're talking about that. Those peaks, nobody is planning that peak peaks are everything. In 12 months, the Philip, the funnel and the win on the back ends. That's right. And I want to explain why peaks in consumer income are so important too. Think about meta, okay? Where primary most of the value is created for these brands is in the ad auction. Every day, the reality on meta is that we are market takers. What does that mean? That means that there's a price to the inventory that we don't set. It's a dynamic related to supply and demand, as well as user feedback score and other things, but I don't get to set the market price. I show up every day with my dollars and I go here meta and I get whatever CPM is assigned to that add at that moment. My ability to arbitrage to create value for myself is based on the price that I'm paying and the conversion rate on that price. That conversion rate leads to a click-through rate, leads to a CPC times the conversion rate equals some value capture for myself. If every day that CPM, I can't control and it's static, it goes up when there's increased demand, it goes down independent. It's higher on the weekends or lower on the weekdays. My job is to figure out how I are by increasing my conversion rate while holding the price of the additive inventory constant. Okay? So tomorrow, if I'm just running my normal playbook, I should not assume that my conversion rate on my media is suddenly going to spike. There's no reason for that to occur. What moments do drops exclusive releases, why sales are so effective, why product launches happen, is they work off the market rhythm of pricing. Black Friday's type of Monday, additive inventory goes up, everybody's conversion rate goes up. You don't really gain something unique relative to your competitors. When I create a peak in the middle of May, in April, in the middle of June, when Noah's else has a peak, market price of additive inventory stays constant, my conversion rate goes up. That's how you create moments where you can either choose to take more marginal value capture for yourself or increase the volume substantially, because you've armed the market price by creating some increase in the demand for your thing. Efficiency or volume. Either one, you get to choose which one you want to take, but the key is the market price and your conversion rate need to move in opposite direction ideally, or one stays constant and you move your conversion rate way up. That's what peaks do. You have to create a reason. The question I always tell brands to ask is, why does someone need to buy this right now? The more that you can answer that question, the more that you're going to create leverage against that market price. Yeah, for everybody out there listening, I would challenge you. An example is like with iconic our art company, it has motivational undertones. January, we do New Year, New Year, and some sort of programming around that. We have the MBA license. Maybe we'll drop new products and new narratives during the MBA finals relative to the best players on the best teams. Just having someone get ahead of it. And it's like, we have what we call it a cultural calendar, but it's going to be very relative to your business and your ICP. Literally, all you have to do is go on chat GBT and say, this is my ICP, what are the cultural relevant moments? I'll give you two examples because I think this is super important. We work with the Baron right here in LA for a long time called APL. I've got them on my feet right now. Awesome shoes. They had, generally speaking, two peaks a year. They had Black Friday Cyber Monday and they had Mother's Day. Those were kind of built into the calendar. They needed to find what we call, we want four peaks a year. We want them one in each quarter that helps balance cash flow, helps keep you in a consistent rhythm. So we looked into March and we said, what could we own in March? International Women's Day. We turned International Women's Day into a moment the brand could own. We would tell stories of incredible customers, highlight cool influencers, go all in on highlighting a celebration of women on this day, highlighting the best skis. Now that's a peak in their calendar every year. Maybe it comes from the story. Exactly. So you build on top it, find a partnership, do a charity, whatever it might be. I'll give you another example. We work with a brand called Born Primitive. Born Primitive is an amazing fitness and apparel brand. The founders in Navy Seal and they were looking for, they generally, they sell leggings as their core skew. The problem with leggings is it peaks for sales and winter. Dies off by the summer as generally people aren't wearing long leggings. So the natural cycle of sales of that. So they were looking for an opportunity to create a moment in the summer. They had launched a new product category. Category extension is a big piece of this into footwear. Footwear is pretty flat annually. So it doesn't naturally create a summer peak. But what they found was two years ago was the 75th Ann anniversary of the invasion of Normandy, D-Day. It was coming up in the middle of June and they were able to sponsor. They did a promotion where for three days, all the money raised went to fund the last veterans that were alive to go back on their trip to Normandy to celebrate the 75th Anniversary. And they created this limited edition D-Day skew. Like 500 of them, high price point, short term drop. Cool. It comes in like an ammo case. You've got a baseball card of every one of the veterans. They had on the day of the event, the military members that were jumping out of planes on Normandy were all wearing the shoe. Incredible content. Bear is a former Navy SEAL. Lots of credibility and authority in that moment. In the middle of June, those three days were the biggest days of their whole calendar. It didn't exist the year before. It wasn't there. They manufactured a moment connected to a cultural story that allowed them to create disproportionate value capture for themselves. And now he's finding every single relevant date that's around. So he follows up this year. The first week of November, he came up with this brilliant idea. They're going to pay off $5 million of veteran medical debt. You can buy up medical debt for pretty cheap price. So it's not a $1-$1 capture. So for three days over veteran medical days, every dollar they raised is paying off veteran medical debt. They got on Fox and Friends multiple times. They generated like they ended up paying off $10 million of veterans medical debt. This is Instagram. They're recording calls, calling veterans that have been carrying debt for 50 years, paying, saying it's gone. We paid it off. The emotion again, figuring out the cultural moment. How does our brand fit into it? What's the story? How do we benefit? And guess what? All those customers, because there was no money. They gave it all to charity, but guess what's coming up in three weeks. Black Friday. So now you have a massive influx of new customer acquisition. You didn't make any margin because you gave it all to charity. Awesome cool, but didn't help the business financially. But all those people three weeks from now lead to the biggest black Friday and company history. That's how peaks become a progressive amplification of the business in total. Yeah, and if you storytelling properly, which we're going to get into, that's it. You're getting all that amplification of, you know, probably UGC created content. People are very excited about that from a distribution perspective. I mean, think about the PR. They're at the earn media that they're getting that they're getting through that. And that's like what brands need to think about more, whether it's an ad or it's PR. What's a story we're sharing? What is the story that gets spent between DMS with people? That's how we communicate with one another, right? And so who is your customer? What are they going to be proud to say? Like a brand's not going to be proud to be like, check out my, or an individual, you're not like, check out my cool new pants. Like that's not my content, right? But if I cared about if I was a veteran or I had been injured, that story is something that I want to show off. Like that I could be proud to participate in. And so those kinds of things want to give people a reason to share their identity. There's a great group here in LA that does called first media that back in the days when like Facebook content was ways that everybody organic Facebook content was the big, the big hurrah. They used to talk about creating for your audience's audience. But the idea is I'm not creating just for the end watcher. I want to give them something that they can say about themselves to the world. And so they would make this content that was all about like dinner hacks. So it'd be like, if you have a crock pot, here's 10 cool recipes to show off to your friends, right? So when they think about that, what they're saying is, okay, somebody's going to buy a crock pot and they're going to have a house party. How do I make them a hero in their world? How do I help them create for their audience? This is deep right here. You got to listen to this part. You're enabling them. That's right. Yeah. Make them a hero in their world. Right. And so with content. So that's the idea. Create for your audience's audience. I want to give you a piece of content that you want to go show your friends that makes you cool in the group chat. And if I can do that, or like for me, it's all about like, how do I create a piece of content that I want them to show to their company? So when I think about creating content, I think I've got a CEO, I've got a CFO that I want them to drop this video and slack to their marketing team. Creating for their audience is audience. And so for me, that's how I think about it. It's like, who, how do I give them something that if they can take to their people in their world, I've created value. You're like disguising sales as marketing. You want people that buy your stuff to market your product. I love that. If you are only building on social, you do not own your audience. You are borrowing it. The algorithm decides who sees it. That is a bad business. Beehive changed that for us. It's where open residency runs our newsletter and growing our newsletter is the number one initiative for us this year. One place to grow, engage, and monetize with zero platform fees. They even have a built-in ad network where sponsors come to you directly through the platform. Guys, I believe in Beehive so much that I put my own money in as an investor. The team is elite, the vision is world class. And the product is built for operators, not amateurs. If you want to give it a try, head to beehive.com/openresidency or 30% off your first three months. Make sure you enter the code mark30@checkout. That's beehive.com/openresidency. Mark30@checkout. Stop renting your audience. Start owning it. I got a million different questions. I want to dive back into the numbers. We're going to talk about storytelling and content in the bit. You got this hierarchy of metrics. I think so many people get this wrong. I'd love for you to walk through when someone is looking through the numbers. What should they actually be looking at? Yeah, that's a great question. So we've moved as an industry from caring about top-line revenue growth in an era where there was an abundance of free capital that everybody cared about making revenue. To now we care about the bottom line. We care about actually generating your self-guys. I was guilty. We were all there. We were all there, right? So the key was, but now is it's not even just EBITDA operating income. It's moved all the way to cash flow. So if I'm an organization though, the problem with trying to map to cash flow every day is that cash flow is actually a proxy decision for a bunch of fixed costs that don't show up every day. You have choices of when you pay them. So what I would encourage people to do is the closest proxy that you can look at every single day for what will be ultimately your cash flow is contribution margin. And just to give people context as well, the ultimate, the most important thing is money in your bank account. But that's a bit more. It's a movie. It's a moving target. So you're saying. That's right. As the CEO, you should have a 13-week cash flow. It should be the first tab on your browser. It's the first tab on my browser for CDC is my 13-week cash flow forecast. I want to watch my money grow. If the bank account doesn't grow, something screwed up in my system somewhere. Okay, so CEO has 13-week cash flow forecast. But the problem with that for a marketer is that you can choose when you pay invoices. You can pay them today. You can pay them tomorrow. So there's human choice that goes into cash flow that should be managed by CEO, CFO, a subset of people. And that should be their primary thing they care about. So if I have to tell you what we're going to talk about, that there's a lot of things you can do to get creative there. We're going to talk about vendors as lenders, all sorts of ways that you can manage the cash flow. So CEOs, that's what I would say. Your team, the whole organization should worry around a daily view of contribution margin, which I would define as net sales minus product cost, minus variable expense, minus ad spend is contribution margin. Now that number is the one that you should care about growing every single day and that you should have a goal for and the organization to be tracking and mapping towards. So when I talk about the hierarchy of metrics built off as sort of like the idea of John Wooden's hierarchy and the idea is that there's metrics that are more important than others. And so the rule is number one is contribution margins at the top. That's the very peak of the pyramid. All I care about is winning that game every month. That's the scoreboard. But the problem with the e-commerce is that that is insufficient. No one metric can actually tell you the health of your business. Because I could be winning at the contribution margin level in a single month, but my new customer file could be shrinking. I could be experiencing a benefit in ways that is hiding some longer term problem. So contribution margins at the top. The next layer of contribution margin is really let's talk about that 13 week cash flow. You know in the near future that you're looking good. I would say another thing in relation to that. I want to let you know what I do and I'm curious to tell me what you do. From a contribution margin perspective, like we know our blended quote-unquote daily burn. But you know we're up and down a little bit. We spend on random stuff. We just do it daily. And then at the end of the month, we'd reconcile. Is that something you do or you know? So you're talking about the fixed costs. You take your blended fixed costs. So here's the problem with them. Let's say rent. I have an office rent. Let's do some easy math. Let's say it's $30,000. And so I'm going to take $1,000 a day and I'm going to put it into my estimation of some people will try and track profit every day. Well, let's imagine that I generated $900 of contribution margin before that fixed cost. And then I subtracted out that $1,000 of fixed cost. That signal to you says that I have negative profitability. What I find is that tends to be a signal to people that they need to cut costs. But the reality is fixed costs as a percentage of your revenue go down as volume scales up. So often the solution to a problem like that, assuming you're generating incremental positive contribution margin on your media is actually to increase spend. But what I find is that the fixed cost often creates a counter signal that gives people the illusion that oh, we're losing money, I need to cut something. Versus no, no, no, I'm actually generating positive contribution margin. I have to spend away from the fixed cost. So when you set your contribution margin goal, you should have a relationship to your fixed cost because contribution margin minus op-ax is profit. Exactly. So when you set that goal, it should be in relationship to those fixed costs. So that that relationship really, really matters. But every day I don't want to trick myself into thinking that I'm negative profitability and therefore need to cut costs. I'll give you another way that shows up in January. We just came out in January. If you report your media efficiency, MER, marketing efficiency revenue, or ratio, total sales divided by ad spend, a lot of people use this metric. In January, if I report MER on net sales, that includes returns. The way that Shopify, because this is tends to be the dashboard that dominates people's thinking, Shopify reports revenue by default in the dashboard under total sales. Total sales are today's revenue minus today's returns. In January, for most businesses, not in the health or supplement space, but for most people, December, big, January, small. What that means is that a bunch of returns from December are going to be processed in January. So what happens is total sales might look bad. So if I'm looking at my daily MER, including those returns, all of a sudden I'm going, "Oh, shit, I'm inefficient, pull back," but really you're just having a higher percentage of returns show up on that PNL, and you need to get returns either accrued as an estimation or out of the view of the PNL. So there's all these ways that the way you present the dashboard affects the behavior. And what I want to make sure is if I'm generating positive incremental contribution marginal, my paid media every day, I don't want any indication that would stop people from spending more money on that effort. You're saying maybe like 30 to 60 days later, you're, let's just say, December, you're going to redo what December looks like in probably February 15th under the notion that there's six weeks that people could return the product, get the real, then that's set in stone. What I recommend brands do is do a returns accrual estimation every month and apply it to the present revenue, not wait and do returns on a cash basis. So what that means? Blend it over how long, obviously December is going to be heavier than the other months. Well, your return rate won't necessarily be higher. So let's imagine I have a 10% return rate as a business. That's right. That's right. That's a percentage. So what'll happen is December, let's say you do a million dollars, that means you're going to get a hundred thousand dollars of returns. So I'm going to use an estimation, which is every day, I'm going to apply $3,333 of returns. And then I'm going to reconcile it at the end of that month. What I'm not going to let happen is, let's say January, I'm going to do $500,000 in revenue coming off a month where I did a million. Now that hundred thousand dollars of returns, which actually gets processed in January, is going to feel like, wait a second, my return rate in January is 20%. And it's like, no, no, no. It's just lagging from the previous month. But because Shopify reports returns on a processing basis and that people batch process returns in weird ways, you almost always want to use a returns estimation off of the present revenue. You want to go crew it back to when the point happens. And some of these dashboards, dashboards are really powerful. They organize behavior in different directions. And so Shopify, if you're listening, please update from total sales to order revenue and get this out of people's eyes because it's one of the biggest problems we face. Drew from Iris is very, very adamant about this issue as well. He talks about it all the time. Drew and I are kindred spirits. Yeah, he's a great dude. So top of the pyramid is this contribution margin. And then I would imagine next, you're looking more at like next, we call it the business metrics. This is just revenue spend, MIRAOV. So that level still matters. At the end of the day, every business wants to grow revenue. And while we can say that bottom line is important, I have never met a founder that's happy with their business shrinking on the top line. It's just a reality that businesses want to grow and growth is measured in revenue and EBITDA. But if you have a shrinking top line, the enterprise business of your value will suffer. So it still matters that your top line grows while your bottom line does too. But it's just the sequence of the hierarchy. Then the third layer, I would say is oftentimes the most important and neglected inside of the business. I call it the customer level metrics. This is now new customer acquisition, efficiency, new customer contribution margin, new customer revenue and ad spend. So I need to all the time be growing my new customer acquisition because new customer acquisition today is my returning customer tomorrow. And the best predictor of future returning customer revenue is the growth of my active customer file. So a lot of times brands make the mistake that assume that my customer file just grows up forever. Right? From day one, I have one customer and every day I add to that total pile of customers. But the reality is most of your customers have laps that are never coming back. And if you were to map out the average time between purchases for most brands, you'll see that 80% of the customers that are ever going to come back will come back within the first six to eight months. So once you get outside of those windows, we would consider those customers churned or lapsed. And what we want to look at is the active customers at all times and the size of that file. And when that file shrinks, what that means is that your returning customer revenue in the future is going to shrink too. And so we have to be growing the number of active customers all the time in order for the business to maintain future growth. And so new customer level metrics become really important to have goals around how many new customers I'm acquiring and that I'm not just squeezing the sponge and getting all my revenue off my existing customer base. From what you see so far. So so far we have contribution margin at top, then business metrics, then customer metrics. Above that, we have cash flow which everybody should be looking at. Who should be looking at this and managing this, the business metrics, the customer metrics, and then whatever's in access. I believe in transparency for the organization that everybody should see it that every day there should be a view of contribution margin to goal across the entirety of the organization. And if you could even if you had the courage to be transparent to the cash flow level, I even think that if you want the people inside of your company to affect the thing that you care about most, show it. Like you can't ask people to affect things they aren't looking at. And so what often happens is I see founders what they do at the very bottom of this pyramid is what I call channel level metrics. This is Facebook Ross, right? Or your triple whale, so your MTA number. This governs most organizations. This is where they force most people to look, which is the devil is if you look at it isolated on a silo, you're it's it's a proxy metric. It is not actually correlated tightly to cash flow in most cases, right? There's all sorts of things you can try and do to tighten the relationship between that. But the problem is this governs the behavior of most organizations and then founders are wondering why don't I have more cash flow. It's like well, because you're asking people to drive triple whale Ross or North beam Ross. And this isn't necessarily like against them as a platform. It's that that signal is not what the founder actually wants. So my belief is if I want, especially my executives, if I want to grow the corporate balance sheet, then I should give them an incentive around the corporate balance sheet. And I should show it to them every day. I think a lot of times the insecurity to bring transparency to that numbers is either a masking my own bad behavior debt that I've taken on distributions I'm taking or whatever it might be. Or I'm unclear on what it means. I don't understand how to measure it or affect it. And so I move myself. I watch a lot of founders get stuck at the bottom of the pyramid just obsessing over Facebook, Ross, Google Ross, etc. Without really driving towards the thing that they care about where enterprise values coming from where their obligation to shareholders actually lives, which is often on their ability to distribute capital to the people who own the equity. I believe in radical transparency. I'm going to get into this eSAP program you talk about. But do you think it's dangerous for people that might be not as advanced to see the contribution margin but not understand the cash flow? I think it could see dollars being made in the contribution margin, but it's like we're floating cash. I think it's a huge myth. I think that attribution is a thousand times more complex than cash flow. You ask people to solve for something down here that is part of my language. It's fucking insanity and complexity, incrementality test and MTA models and all the things. And we say, do this because that would be too hard to understand. And I just go, no, no, no, no, this is real money. This is reality. This is objectivity. We can actually help people make decisions and understand these inputs. This is way, way, way more complex. And I watch everybody get stuck in this quagmire because there's some trope. And I absorbed this for many years too. The idea that they couldn't understand about cheap. They couldn't understand the three financial statements that cash flow or a PNL would be too confusing. And instead we adopted something way more confusing, way harder to understand. You touched on the measurement tools like a triple weller in North B.M. What place do they hold in this home, Darden? You just think they're one tool on the bottom four of the quadrant right there that should be used as one extra kind of, I'm not going to say it's subjective, but just one more variable to look into the equation. I think the key is that you tie together optimization and attribution. So what do I mean by that? Inside of meta, we only can optimize for a subset of data outcomes. Meta's system, the actual allocation of your dollars is based on when you set up an account, you select what am I optimizing for? And your choices are conversions most often is what you're optimizing for. As measured by one day click, seven day click, seven day click, one day view, one day click, one day view or now they've introduced engaged view, right? But these are as reported by meta systems as seen by meta systems. They are going to allocate your media towards that. Now what the MTA solution started realizing was they understand that this is actually true that you can't affect a number that the meta system is in optimizing for. So they introduced things like North B and Apex where you can actually set the optimization setting where they're passing back signals to meta to optimize for it. My connection is one, I think that whatever measure you're using should have some relationship to one of those metrics higher up the hierarchy. So ideally new customer revenue. So you should try to find the strongest causal relationship between whatever measure you're using and new customer revenue. And you should make sure that you are optimizing for it in meta. So if you're going to use Northbeam, you better use Northbeam Apex. You better pass that signal back to meta. Because otherwise meta is optimizing for something completely different than what you're measuring. So I just want to break this down real quick. So you have, we could say, meta, we could say Google, we could say anything in platform is one side. The MTA is another side, which is these tools that are the measurement tools. You're saying the North star, what to look for from a data perspective in each is who is delivering the most amount of new customers? Yeah, I'm saying that whatever setting, you just you talked about in platform that's reporting. MTA models are reporting. I'm talking about the actual algorithm that allocates your dollars. What data is it using? And in almost every case, they're using meta reported the numbers in here this after you should do that's what they're actually allocating your dollars based on. So you can measure it however you want. But whether or not you win an auction is based on the machine's ability to make a predictive model about a conversion as identified by meta's system. So it doesn't matter what attributes you use, the actual allocation your dollars is happening based on meta's data. So I most often have seen that meta's data correlates very strongly to new customer revenue, especially if you use seven day click with good exclusions. You can create a very tight relationship to that causal number. And then your job is I think the layer there is to then run incrementality studies, geo hold out. And to find out what the actual causal effect was on your revenue. And let's say meta reported a one and your incrementality study said it was a 1.2. Then you create what we call a factor a multiple of the relationship between the platform reported result and the incrementality study and you measure meta's platform result without adjustment. And you optimize accordingly. But the point is at the end of the day whatever attribution model you use is irrelevant because meta is allocating your dollars based on that system based on that attribution view. And that's the one I would care about the most. At what scale do you think people should be using this outside incrementality tool? I think that when you get into multi channel allocation of your media, you need to understand the distinction of the effect of each channel. When you are in meta exclusively, there should be a tight correlation. You should be able to export your seven day click, Rhoass, and it should correlate very tightly to AMER on a daily basis. So you could just throw those both in a spreadsheet on a daily basis, go equals parentheses, CO, RREL, comma, the two data sets, and you'll see hopefully it's a 0.7.8 point and there's a tight relationship. You can assume that meta is driving new customer acquisition. You can map them. You can see it visually on a graph very easily. The second you go, okay, now I want to try YouTube. I want to try TikTok. I want to try app loving. What I would encourage you to do is start with an incrementality study of the net new channel. Go into that channel with an isolation of some DMAs or geographic regions to determine the effect of that new channel to start. That will give you a benchmark factor in that place and on and on. The challenge is if you're a brand that already has a very diverse media mix, it becomes almost impossible to sort out the causal effect of every channel individually. Then you have to work backwards to start going through channel by channel to understand the effect. It's much more complicated. Best case scenario, you're in one channel and as you expand, now you introduce that testing to understand the effect of each new place you go into. Explain that a little bit more. I don't know what you mean by DMA obviously. Yeah. I'll provide geo perspective. When you say hold out, it's basically you just want to do a split. You just want to do a test that meta and everything else is excluded. So you have a very controlled environment to say if it works. DMAs are often references to zip codes or smaller subsets of regions beyond states. So you're going to take a subset of DMAs where the revenue is modeled to be similar to one another. So good data science teams will look at the relationship of revenue in different areas. AI can do this pretty effectively. There's lots of tools. We do it at CDC. How does it? There's a bunch of incrementality tools out there and they're going to get a data science team to model two regions in one area. The spend is going to be turned off. The one area the spend is going to be turned on and we're going to figure out how much more revenue showed up in the place where the ads were and that gap in revenue in the control versus the variable is going to give you the actual effect of your media in that region. Makes a lot of sense. From a platform perspective, we just talked a lot about meta. I would say for most people that are listening and or have come on. I mean, I could tell you like for us, we're 85% meta and meta is obviously Facebook Instagram and then Google is kind of as everybody's I would say as everybody's second. Yep. Biggest one. You have you work you've seen thousands of brands. Yep. You won 2026. What else are you saying? The key right now is actually mapping a relationship between your channel distribution strategy and your media measurement. So the playbook in 2026 looks like this and I'm going to speak this is for slightly more matured brands. If you're sub 10 million, stay in the single channel orientation. You don't need to go beyond meta to drive growth in that area. I think that's a well worn topic. I think most people understand the capacity for that channel to drive real growth. So for this section, I want to talk to brands in the 10 to 100 million range. You're saying zero to 10. Sprinkle on some Google obviously. But you should just basic search. Yep. Yeah. And you should just go really, really hard on meta. That's right. Cool. That's right. So what I see now is in many of these categories, we have to recognize that e-commerce as an industry post-code is growing back to its pre-COVID norms, which is about 15 to 20% a year. E-commerce is a percentage of online retail is growing about that much. Okay. Many brands, what's happening is the supply, the amount of competitions growing faster than that. And so their category growth is either flat or very small. So their dot com website growth is stalling. I'm seeing this everywhere. Exclusive.com revenue growth is challenging for many brands. So what they're realizing is that the growth mechanism is to expand channel distribution. First step, Amazon. Amazon still represents somewhere between 40 and 50% of all e-commerce sales. In some categories, commodities like batteries, it's 97%. So depending on your category and how commoditized it is, the blended average is 40 to 50% of all e-commerce happens on Amazon. Apparel, which most people is 40%. 40% of apparel purchases happen on Amazon. And the more commoditized your category, it is the higher that number is. So brands are realizing that consumers want to shop on Amazon. That's like a very serious reality for most businesses. And if they want growth, it's usually going to include that. The problem with Amazon is it's almost entirely demand capture, right? In the sense that it doesn't drive incremental and that new demand for a category. It takes that and there's some amount of search volume that exists and you're competing for your share of it and you're still obligated to go drive that demand. And it's a black box. Yes. It's very challenging. But what's happening is is that if I'll give you an example of a brand, we work with a brand called Fellow. They sell coffee makers. Awesome, super cool high-end coffee makers. They're on Amazon and dot com. And for a brand like that, if they were to measure the effect of their meta dollars exclusively on the impact of dot com, what they would see is that as the Amazon business is growing, the perceived effect of their meta performance declines. And so what brands will do is they'll expand the distribution Amazon Walmart, whatever, but they continue to measure their media exclusively on dot com and it looks like it's going down. They pull back in the whole engine stalls. Okay. So what the best brands are doing in 2026 is they're realizing two things. One is that when I spend money on meta, it drives an effect on Amazon. And the way that I actually get to seeing the signal to drive incremental effect is I measure my media's effect on both dot com and Amazon. You can do this using incremental study studies. And then what that allows them to do is unlock other higher funnel channels like YouTube. Okay. So we're sitting here. This video is going to end up on YouTube. YouTube drives as much value capture on Amazon as that dot com for every dollar of value that you will generate running a conversion optimized ad on YouTube for your website, you will drive equal effect to your Amazon revenue. Wow. Metas more like 20% of the value will end up on Amazon 80% of it will end up on your website. The higher funnel you go, the more of that value realization will end up on the larger purchase volume channel, the Amazon, right? It'll look more like the normal category pie of e-commerce. So as you get to CTV, as you get to YouTube, whether it's not a direct click often, it's often a view based consumption, a large percentage of YouTube ads are watched on TV now. And they're like, oh, I remember this brand of where did I go to first at Amazon? Because that's their normal behavior. So as you move up funnel in order unlock growth in those channels to get to media channel expansion, you have to broaden your measurement to include broader effect. So you have to look at the effect on dot com and Amazon. Again, incremental study studies a great way to do that. And all of a sudden that YouTube ad that looks unprofitable when measured just against dot com. Now suddenly you realize, oh, shit, that is profitable. I am making money in unlock scale there. Okay. Now I'm going to give you the third channel that's happening that's driving this this effect of the 2026 brand tiktok shops. Okay. The largest attention channel that we're all spending way too much time on our phones on is tiktok. TikTok ads to direct dot com dog shit terrible almost never work. Right. So what happens is people go try and run tiktok ads. They try and drive it to their dot com. It doesn't work. They shut it down. That's not the game. The game is set up tiktok shops, build the giant affiliate network. Try and run this channel at neutral or even maybe slightly losing money. I'm seeing companies losing on there and doing 100 million profitably holistically drive the effect through the entire digital ecosystem. And so the pyramid of 2026 looks like this. Top of funnel demand like YouTube tiktok shops with the affiliate network at a neutral margin for that distribution dot com value realization comes from limited edition high a o v high margin merchandising the through fans. The volume movement happens on Amazon. My core black skew you're going to end up with more volume on Amazon as these top of funnel initiatives become a higher portion of your media mix. That's where all the volume is going to end up. But the overall digital enterprise we call it gross. And that's the playbook now. It this idea that this is d to c dot com exclusive growth meta exclusive. I run YouTube to dot com. You're going to get slice to death. Your media efficiency will degrade the amount of businesses. I see that have silo to amazon and dot com competing against each other separate PNLs all the meta budgets on dot com. Why is dot com slowing down meanwhile the Amazon channels a hero look at all this margin. No, no, it's one engine that you're creating for your digital enterprise. That's the playbook in 26. Yeah, I think that there's a lot of people out there. You know, you said 10 million. It could even be maybe six, seven, depending on the circumstance. You need to do these incrementality tests. Yeah, right. You have to understand. His Kent was on and it was from neurogum. It was 20, 24 fastest growing brand on tiktok. Yep. And he was talking about the relationship between tiktok and amazon. Right. And he shut. And when he shut off his Amazon ads, nothing happened. His Amazon velocity did not go down. That's right. Because tiktok was driving the top of the funnel and people were transacting on Amazon. Amazon ads are attacks. They are not a demand creation. They are a defense against people overtaking the sur. It is Amazon's ability just like Google branded search and it's attacks you have to pay to defend your own demand. It's a finger in the hole that keeps your funnel tight. But it doesn't create net new demand. So oftentimes Amazon ads like Google branded search are going to be very low incrementality until a ton of competition shows up. And then it's just attacks you have to pay that's going to be margin destructive to your business over time. That's what happens when you exist in a category with no mode, no IP, no defensibility. All the profits going to compete, compete it down. They're going to compete on your branded search terms. You're going to have to pay a higher and higher attacks. You're going to get less and less margin capture. That's why monopolies lead to higher leverage, higher margin. High competition leads to lower margin capture less value. So, but the key is as you expand distribution and this is even more true. We didn't even talk about retail, but a lot of brands are rolling out retail and they're going like, why is my dot com efficiency going down? Well, it's because a lot of people prefer to shop and target Walmart and Best Buy and wherever else. But your measurement has to broaden with it. When we started with you worked with native deodorant from the day that they were acquired by ppng. Five years, okay. The day they showed up, 100% of their media was on conversion optimized meta hats by the end of our run with them. Zero dollars were because the and the business had grown like 15x because all the distribution moved to retail. It's deodorants. Where does the bulk of deodorant purchase still happen? Still happens in grocery. It still happens in target. And so the media mix needs to move in support of the distribution. You can't expand distribution and continue to measure your media exclusively on dot com. So this all goes back to it's that second bucket, that business metrics, even if you go into retail. You just and that, you know, you can argue that retail you're transacting there, but it's also marketing. That's right. It's just what is your blended contribution margin across all and do incrementality tests and hold out to see individual channels. Are they successful or are they not? That's right. Media exists to drive your business growth, not to drive your dot com growth. And I sit with founders all the time that are just assuming that this channel expansion is coming from nowhere that it's just like it's being manufactured demand somewhere else. But the reality is meta, YouTube, TikTok affiliate. This is the motor for the growth of your entire business in every channel. And if you don't begin to see it that way, you will suffocate the demand because your dot com efficiency will look like it's degrading really quickly. And it'll give you a signal to pull back on that efficiency and you'll choke the growth of the whole thing. And look, the best retailers will be purely complimentary audiences where they do serve as marketing being on an end cap in a great retailer is net new awareness for your business that can drive demand as well. Well, I have seen brands that have large scale distribution of dot com in a geo. And then they will open their own store in that geo. And all of that revenue in the store is just cannibalizing.com. It's just the same people buying in the same place for the same thing. And you have to be really careful with that. And that's why like a lot of times I see brands that are like the retailers are really good at bidding people into this. It's like, Oh, Nordstrom is going to launch with us. Oh, it's going to be dot com exclusive for a while. You know what Nordstrom is going to do? They're going to sit on your brand terms. They're going to siphon your demand. And they're going to make you make less money and compete against yourself. And they're going to tell you it's their value creation. It's not value from retail usually comes from being in store in net new places where you are not in yet where you can expand awareness for your business and drive truly incremental demand in those places. They think the point out there too is it's what we've done is product segmentation. So we have different art substrates. That's right in retail. So then and that's it's lower ticket in retail. Right. They like the designs. They'll come upstream higher price points. See the brand and get the canvas. So much of this is great merchandising. Right. It's having a plan for like the brand. I was talking about the coffee shop that they are like, well, how do I get into TikTok shops? It's super high OV and I go, it's a merchandising problem. You need to create something to unlock a channel. You need to have a point of view of how you access the attention to consumers with your product and innovate for the sake of the channel. In the same way that if Walmart came to you and said, we want to ride a $10 million P.O. But we need to skew the cost 20% less. You're going to get with your product team. You're going to figure it out. Right. That's no different for TikTok shops. You should be thinking the same way. How do I create some merchandise that works here because this is a massive flywheel of attention if I can unlock it. So meta Google you mentioned TikTok shop when you mentioned Amazon, you mentioned retail. One of those other quote unquote I was just called on, you know, paid platforms that are using work. Is there seeing a ton of brands? The other big one right now. So if I look at share of wallet. Yeah. So the percentage of customers it's meta, Google number two and number three and four right now is a close battle. TikTok kind of fights in there every now and again. If you separate out Google and YouTube, it might be YouTube, but let's just bundle those together for right now. Number three right now is Apple. Okay. This is the channel that has experienced the most growth of late. So Apple oven is a network, an ad network built into mobile gaming. One of the novelties of that ad unit is that it's an unskippable ad. So we've all played mobile games. You're sitting there and you're waiting an ad interject and you have to watch all of it. So it's forced consumption which may feel annoying, but it's a high value audience with a lot of whales. So mobile gaming is a whale audience where there's a small subset of customers that spend a crap ton of money. Okay. So there's high value consumers in there. It tends to be net new and incremental for a lot of brands when they start there. And I'm seeing it pick up three to five percent share of wallet for big spenders. It's not going to compete with meta. Some brands have I've heard those anecdotes. But for the most part, there is and I can we've run a bunch of income, income, and tality studies that we've seen it be more than a hundred percent incremental meaning the actual impact is matches or exceeds what's reported in platform. Tens of you are really good sign. They're doing good work around trying to find more products around new customer optimization. The team there is highly responsive. They really engage. They want to win in this channel. And I'm seeing brands get to a substantial amount of media in that channel. What else? What are the other small ones? YouTube, CTV. So podcast CTV. Let's put Pinterest and Snapchat tend to be even X and it tends to be industry specific. But I have yet to see any of those really consistently across a large portfolio brands unlock scale. Yeah. So we have partnership with a universal comp cast for CTV and it's funny because all of this stuff. They are not taking on any client unless they are adamant about the incrementality test. That's right. Because then you're not actually understanding and knowing their performance. That's like a non starter for them. And what I would say is CTV should match when you have broader distribution to capture the value. Because again, when there's not a click directly, the ability to realize the value on that ad dollars is predicated on showing up into the person's life at another point that they already interacted. So it's being in retail and they're connecting the dots to that ad that they saw. It's being on Amazon when they're browsing whatever it is. So if you have.com Amazon and retail, CTV is really powerful. If you're.com exclusive, it's really hard to get it to pencil on exclusive.com. It's possible, but it's much more challenging. What I like about it is going back to that culture calendar is you can actually pick. Yes, you can show up in moments. They do like the Olympics. That's right. Imagine if you're speaking to that cohort and you're you know, you get hit here, here, and here, and then you're watching. And I that's right. And if you're going to be selective about trying to show up in the places that matter to your business in coordination with the moment, let's go back to that veterans day moment. If you're going to go into CTV on Fox on those days, like that all makes a ton of sense is to try and amplify and attach to those cultural peaks. CTV can be really powerful for that. Oh, guys, quick break. This episode is sponsored by Universal Ads, a division of Comcast. I have spent tens of millions of dollars on meta ads. At one point, it was 95% of my marketing spend. That is super dangerous. With one algorithm shift, your whole entire business can stall. A great option is layering in advertising on streaming TV. I thought it would take weeks to set up and a big agency to maintain. Guys, it took five minutes. Universal Ads gives you direct access to a ton of premium publishers. NBC, Paramount, Roku, all the big networks. A hundred percent of your spend goes to actually reaching people, not middlemen. And the best part is there is no fees. Same workflow as meta, upload your creative, target your audience, and launch. I've already moved massive brand spending millions of dollars a year on CTV over to their platform. I've negotiated ad credits for my audience plus free creative and measurement services. If you're running CTV or spending six figures plus a month on paid, email us at [email protected] with subject line universal. Platform dependency is dangerous. Don't make that mistake. Link below for more. Let's get a little bit into kind of scenario planning. You have this four quarter accounting for planning process. Why don't you break that down? We talked a little bit about how we saw the hierarchy of metrics. I want to talk about this four quarter accounting. Yeah. What is it? I want to make it easier for business owners to understand their P&L. So we came up with a very simple heuristic. I call it four quarter accounting. The idea is that you can break any P&L up into four categories. The first category is what we would call cost of delivery. So that's your cost of goods plus all those variable expenses that we talked about. Okay. The second is CAC. This is your marketing expense. These are all the dollars that go towards driving a direct response on your media. The third is OPEX. These are your fixed costs. So this is your rent, your labor, your software, whatever goes in the category in the fourth is profit. And an ideal scenario, if you were to build the way that we draw this graph and we'll throw one of these up there, hopefully good tag to the editor here is imagine that you have all of these at 25%. 25% COGS, 25% OPEX, 25% marketing, 25% profit. I think if anybody's running a business and they got 25% profit, they're feeling great. So what tends to happen is that profit gets eaten away in one of these three categories. E-commerce, the traditional mix looks more like COGS are probably 60% or 40% is more of where they land. So 60% is your gross margin. 40% is your COGS. OPEX should be lower. And that's where all the innovation is happening. That should be going down on now closer to 15% and CACs. It's somewhere between 25 and 30% and then you end up with a 15 to 20% E-commerce business. You're killing it. But if you were to just take your PNL and what I encourage people to do is ask your accountant to build you a four quarter accounting chart. Just show me those four categories every month. Just break it up. I don't need to see every single line item. It's so confusing where they all are. It's hard to understand. Show me my total cost of delivery, my total OPEX, my total CAC and my total profit and see where is my profit going. Which of these can I go and create leverage against? And that's the problem to go solve. And you'll find all these areas where it's just, oh man, this is like, why am I so much worse here than everybody else? It's so crazy, man. I didn't start doing this. And I see this from a daily, but I look at it more from a monthly perspective. I just start doing this for four or five years in the business. And again, in conjunction with 2021, just like everybody else, I saw my OPEX was way too fucking high. But I want to go through each of these. So cost of delivery is the product and all those little small things for people out there like really think through, you know, the 3PL charging you 15 cents to write the handwritten note on the card. Yes. So let's let's let's let's go through each one because I think it's important to understand some benchmarks within each one. Yeah. So cost of delivery is usually two primary components that your product costs and your shipping expense. Okay. As a general rule, one of the things that brands do way too often on their dot comics, especially and this is again, I'm thinking about a channel strategy is they give away free shipping. And so they are net negative on their shipping dramatically. And so if they look at their cost of delivery, it should be that product costs usually actually aren't that expensive for most brands. There's somewhere between 10 to 20% of revenues actually product costs shipping. I see also can be as much as 10 to 20%. If your shipping is 20 or 30% of your revenue, something is wrong. Either you're not charging enough for it or you're getting just destroyed by your 3PL or there's something happening there. Now, there are some products that have bad what I call value to weight ratio. We work with igloo coolers. You're shipping a bunch of plastic air. It's a bad product for e-commerce in many ways. It's bad value to rate weight ratio. Shipping's always going to be a high component. Jewel realternatively has great value to weight rate ratio. Guys, for people out there listening, this is a highly underestimated part of the conversation. I think I talked about this with Sean. Same thing with me with our bro. So we're 39 and a half inches on one side. It incrementally jacks up the shipping. It's the absolute worst. Get a little baby. Get a little baby product. That could say exactly something perfume. Anything that is really small doesn't take a lot of space and has high OV. That's great for e-commerce. Shipping should be about 10% of your revenue tops. Ideally, it's less than that. I actually think it's a goal. I encourage brands to track what I call net shipping costs. Shipping revenue minus shipping costs. Now, the question all the time is, could I realize more shipping revenue? Could I charge the customer more? You should get really clear for yourself. This is where price testing all the time should be coming in. But that net shipping revenue is something you should keep an eye on all the time because shipping just destroys a lot of businesses in ways that it's kind of hidden at the grand scheme of things. Yeah. For our business, it's a single unit dropship. Our production is one of the biggest FedEx in U.K.S accounts. We actually have our shipping baked into the cogs. That's another way to hide it. There's more predictability. And then when we charge for shipping, it's just. access. That's right. Yeah. There's lots of ways to play with that game. But gross margin, the reality is the average gross margin in e-commerce is about 42%. So about 58% cost of goods across the industry. We ran a really great study that we'll share some of the data in one of the show notes with Final Loop, large accounting platform to look at some of these benchmark averages. So about 58% is industry average. Apparel, it's usually the return rates you need into a lot of that. If you're a hard goods that has no LTV, you probably want to be a lot more than that. If you have higher LTV, gross margin can be less of an issue because you're going to get a high consumption rate and more future purchases. So there's all sorts of considerations around what's good gross margin for you. And it depends on how much of that repurchase rate, how much competition exists, all sorts of different things. But that 10% shipping, 20% product cost is a good indication to go, okay, where am I at relative to that? And why? And can I fix that? You're talking about the cost of delivery. Yep. You're saying needs to be what? What's the range? Ideally, again, if I can get that to somewhere between 30 to 40% that probably means it's not the biggest problem in my business. There are some limitations to how low you can actually get that number. Some of that is negotiating with a supplier. There's probably a conversation to be had about two, the difference between the PNL and cash flow where there's, it makes sense sometimes to give up margin on the product level for cash flow. We're going to talk about that. Yeah. So but let's say if I can get this between 30 and 40% is my cost of delivery, that's probably not the biggest problem in my business. All right, let's jump into CAC. Yep. So on the CAC side too, just for it's basically your marketing dollars. Yes. Are you baking into that like marketing contractors and agencies? I don't. That number for me is pure media dollars for the sake of generating revenue. The others I would put into fixed costs. I just don't want to convolut that number with fixed dollars. I want it to be purely variable marketing expense. I think that might change for you like what we're talking about before off camera. Yeah, that creative is becoming such a big thing. Yep. Do you think maybe that will, well, if creative is a variable expense, which is becoming more of the case where creative becomes a variable expense, in which case it should be baked into that. Yep. But if it's a fixed this expense, I would separate it out. So that's just the distinction. Is it variable or is it fixed? If it's a variable marketing expense, it goes in this bucket. Come on. So from a CAC side, what percent are we looking at? Yeah. This has to do with the stage of business that you're in and whether you are a high LTV or low LTV business. Okay. So you had Sean on here. He sells Ridge wallets. He runs at 50 percent. Marketing is a percentage of revenue, right? Because it must be nice, Sean. Yeah, right. High gross margin, low op-x, high marketing expense because every month, all of his revenue has to come from new customer acquisition. And the reality is the median result on meta across my entire portfolio for new customer acquisition is like a 1.7. That means the average cost of acquisition is like 55 to 60%. That's huge, right? So now, how does that change? How does that get to where you'll talk to these businesses that are large-scale retailers like Ante their loft or a coach or these legacy businesses and their marketing should be 10% of revenue? Well, how do you get there over time? I have this graph that's one of my most viral tweets that I have that I call the Mona Lisa of e-commerce. And the idea is that if you could hold new customer acquisition constant, if you're a business with good LTV and you hit every year, you went out and acquired 100,000 customers, 100,000 customers. Your marketing is a percentage of revenue would go down over time and your revenue would go up. You'd see margin expand because more and more over time your revenue would be coming from your existing customer base. So if you have high LTV, you should see marketing is a percentage of revenue go down over time because more and more of your revenue is going to be coming from your existing customer base over time. You get high LTV, you're capturing value off that base, you hold new customer acquisition constant and that will expand over time. So you can be a business that those businesses tend to have higher op-x because they can afford effort towards the relationship with the customer because they realize value over time. They're less of a new customer acquisition engine. They have higher emphasis on customer service, higher emphasis on loyalty, higher emphasis on retention because the value capture is all after they've been acquired. But if you're a hard good like that doesn't have good LTV, you're going to see this number be closer to 40 to 50 percent because every month you have to go acquire new customers over and over and over again. So so much of this depends on the stage of the business that you're in and the type of business model you're running and being aware of the distinction between the two. So Sean's business at Ridge is always going to be high marketing cost, low cost of goods, low op-x. That's going to have to be the model in order to get to profitability and you've just got to be aware. So with Fortwater accounting, there's lots of ways to win the game to configure the the the different levers. You just have to be conscious of what business model am I yet? And so therefore what needs to be true about where I have to create leverage? Or pick a product that's good LTV. Or just like exactly. Or solve the problem by just picking a better business. Exactly. I mean, me and Sean, we talked about on camera, but also off camera. It's just like the fact that he's winning the game and fuck I've won the game at a smaller level. We've won the game with not the hardest business model ever. Ever. You have a lot, not a need and LTV. No LTV. It is the hardest version of the game. And this is teaser to get you guys to stick around for a little while. This is why I'm going to tell you that service businesses are way better than e-commerce businesses later. Yeah, because I was just about to say this looks absolutely terrible. We have cack at around 50. We haven't even talked about op X. And this is why it is fundamentally important to understand that e-commerce is a low op X game. E-commerce is not a full time employee large-scale business, large-scale office business. That's what we all thought it was in COVID. But it's not. It is how much leverage can you get off of a very small employee base? It is a lean op X business. I've watched the standard go from 25% to 20 to 15 to now the benchmark for great e-commerce business. Somewhere in that 10 to 12% range. For their entirety of their op X because the marketing cost and competition just demands that the dollars go to growth, not to labor. And so you have to create leverage. And the good thing is like AI is creating this. They're creating opportunities and you're seeing this now brands with a million dollars of revenue per employee, five million dollars of revenue per employee. It's happening in e-commerce all the time. Yeah, I don't even think you can win if you're over 20 at this point. I think that the last five years, I mean, I know because I actually just looked at these numbers yesterday. I don't think that there's any business that is still in business today. That year over year. Man, you can argue, I'm not going to argue a percent of revenue, but they're fixed dollars per day of op X has to have gone down every single day. It has to. And I'll just say, like, I don't even care if you're scaling your doubling up. It's just it has to. I promise you have not found the maximum output of the people inside of your company because AI is changing every day. What is possible for one person to do today versus what it was two years ago is like infinity X times greater output. Number of ads they can make. Number of channels that they can manage. Number of things that they can model from a forecasting and demand planning side. Like everything somebody can do now in partnership with all the tooling available. The output is just infinitely greater and you have to challenge your organization to move along that curve or you're going to get swallowed because what it's going to mean is somebody can spend more for marketing. And if they can pay more to acquire the customer in a competitive set with you, you lose. It's the old Henry Ford. Like he who wins is whoever can pay the most for a customer. And that's the end result. Good point. And if you're going to get that that leverage on the op X, it might be better to play a different game, which we'll talk about. But I want to talk specifically about this four quarter account and the four things that we spoke about. Yep. And how do you use this cash conversion cycle and you're planning to optimize? What are all these things that you do? That's right. So it's really important that you understand that playing the P&L game, which is what four quarter accounting applies to. It's a way to analyze your profit and loss statement is very different than managing your cash flow on your balance sheet. And there are times to take trade-offs in your profitability in your gross margin for the sake of cash. In business, the end goal, the opportunity to everything else is growing your bank account. And especially in an era where M&A is really challenging for brands, there's funding is really challenging. Growing your bank account gives you ultimate optionality. And so I'll give you an example of a tactic that we help brands with all the time that has to do with a reduction in the view of their four quarter accounting makes their P&L worse but helps the overall business from cash flow standpoint. A peril is inventory intensive. And you're making guesses all the time about the allocation of colors and sizes. And you're doing your best to model it. But the only thing that's true is that you're going to be wrong. The question is what do you do when you're wrong? And so what we help brands to do all the time is track what we call aged inventory. You break inventory into four different categories, ABC and D grade. And that just has to do with how long it's been sitting in your warehouse or how many days of inventory outstanding there is in the warehouse. And so what you want to do is you want to be turning inventory as fast as possible. And ideally your days of inventory remaining it matches how long it takes to produce the product. So that's that if you were to place a PO today, you would run out just as the new shipment arrived. That's ideal. That's called just in time inventory planning. But what happens is sometimes you make an order and the sales velocity dips and all of a sudden you find that you have a thousand days of inventory outstanding. That's a problem. That's a cash flow suck. And so what I think about is how much you should be willing to discount a product or alternatively how low of efficiency you'd be willing to take to turn it back into cash should be related to how many days of inventory you have outstanding. So brands make two mistakes. You need to optimize for cash. If you need to optimize for cash, but regardless, I would contend that aged inventory that isn't moving should be liquidated and a new bet should be made for the sake of the business always because it's just a cane there and it's probably losing its value by the dead. That's right. And anybody who's sophisticated that comes in is not going to assign to you the full retail value on your balance sheet for an inventory that's been sitting there for two years. Right. So if you are trying to hold it there because it's propping up your asset to liability ratio on your balance sheet, your proverb probably overstating the value of that inventory. Guys, go to Uncle D Murphy at ghost.io. I'm going to put the link down below to liquidate all your needs. So is that really easy liquidator? Oh, it's an amazing episode. You got to watch it. It's yeah, maybe the most important resource a business with large inventory constraints should have is relationships with liquidations. And then also the capacity to develop what we call liquidation funnels. So imagine you have a set of skews that you want to discount and turn back into cash. There's two ways to do that. What we suggest doing is creating an unlisted PDP. So not one that shows up on the website, right? It's unlisted. And we're going to run ads. And if our target cac on our good inventory is our target Ross is a two to one. Well, on liquidation, it might be one. It might be 0.8. And so there's two ways you can do that. You can either discount it a ton on the funnel and make it only available through the ad not available on your website. You can exclude all your existing customers so that no people don't see it or you just take a much lower efficiency to move through this inventory quickly. So that's a tactic that improves your cash. It'll harm your pin out. It'll reduce the overall margin value of the business. But that's okay because turning that back into cash that you can go back and buy good inventory is just as important where you can make high margin dollars. That's right. Yeah. The other mistake that businesses make is on the other side. And this is what happens when a media buyer is operating under a real-ass obligation independent inventory position. If you are about to sell through a skew, let's say you only have 30 days of inventory left and it takes 80 days to order more. Okay. You should either increase the efficiency expectation and maximize the marginal value of that batch of inventory or turn off the ads entirety. Okay. The worst thing you could do is pay a high-cap to move through inventory that's about to go out of stock. Right? Because what that does is it minimizes the marginal capture on that batch of inventory. Every time you place a PO, your job is to maximize the marginal value of that batch of inventory. You're probably tearing it down from ABCD just from a margin. Like how do I get the most amount of margin and then it just keeps tearing down? Exactly. Right. And so what brands don't do and if I'm a media buyer, I'm going to sell your best skews at the target that you've given me and I don't care about the inventory. I'm just going to move through your best marginal value. It is. It's so much more expensive. This is game right here. That's it. This is serious game. So if you're in a parallel business or you're you should have an inventory meeting with your media buyer every week. And you should be looking at how many days of inventory outstanding are there on the best skews? Where are my ads going? What am I spending money on? Oh, shit. I'm going to run out in a week. Raise the efficiency expectation of time or turn it off and let's move let's move through some of this other stuff and see and make sure all the time that your demand creation matches your demand planning. Those things are disassociated. So if we go marketing, ops and finance, this is the connection between ops and marketing, the relationship to ensure that your demand planning and demand creation work in sync. And then if all bets are off at the bottom, you go to Uncle Dia goes and you liquidate and you look at it and or if it doesn't affect the brand, maybe you hit the big list with a discount and maybe build a narrative around it. That's right. But you have to have strategies all the time to move through inventory and turn that nothing is worse than paying the storage fee to put on shelves inventory that you have no plan to sell. There's no ads running. There's no emails planned. It's just there and you're just going to pay someone to store it for you. That's your money. As a founder, that's literally your cash that is sitting on a shelf that has no plans to be sold. Go get that. Turn it back into cash making a new bet. Yeah. I mean, I will really want to touch on suppliers and vendors and terms. Because that's something for me, man. I'll give you some real ad game. I have crazy. You go first. I got crazy. I'm so late to the game. I only been doing this for three, four years. I'm like, oh my god. I could go from net seven to net 90. You go first. Yeah. Vendor as lender, bro, is that my cash flow is your float. Okay. I'm going to give you tell you how the big boys do this. Yeah. Okay. Six months ago comes to us. They're spending, you know, million plus a month on media. They say, as of next month, you are going to put our ad spend on your credit card. And I'm going to get net 120 day terms on that a million dollars. And I go, guys, you want me to float a million dollars for 120 days? You think I have like this kind of cash flow? They go, oh, we actually created an internal lender that if you want a loan to manage that float, we created one. So now, not only are you going to handle my media, I'm going to loan you the money to float me the cash. I'm going to make a big on that and push my media terms out 120 days. Now, we might have to mute out the name of this. Yeah. Please do. Please do. Some gangster illuminati shit right here. Dude, this is what ultimate leverage looks like. Because they know they could just go to any any agency. This is why like agencies like they think they want the enterprise game. You don't guys. You don't want the enterprise to smoke. You want to go out for the small businesses because they create the mediums. Not the small. No, dude, the smalls. I'm telling you, we could come back to that if you want the smalls. The leverage in the relationship dictates everything. When you go to Walmart, the reason they pay you on net 180 day terms on retail is because what are you going to do about it? Right? The only one Walmart. Right. So the leverage matters. So that's the extreme example that does wait a second. We have cash flow issues and e-commerce solved. We just turned our media expensive and net 120 days they do it. There's suppliers they do it with everybody. Now, if you're a small business, you don't have that kind of leverage. But here's the important things is that you need to understand the cost of capital in your ecosystem. Okay. So cost of capital. Just think of that as simple proxy for it is the interest rate on the lending that anybody has access to. So if you're a business and you go, well, where could I go get my credit cards 30% interest rate? A merchant cash advance is like 70% interest rate. I have extremely expensive cost of capital. Well, your suppliers in China in particular, there are a lot of government subsidies for manufacturing because they care about the industry. So those guys can get much cheaper capital than you can. So if you go to them and you say, hey, I'll actually pay you an extra two bips or 10 bips on my gross margin. So I'll actually pay more for my cost of goods, but I need better terms. For them, that cost of capital calculation might actually make sense and they're going to be more than willing to do it. For people out there listening that don't know net terms is if you transact, if it's net seven, you pay them seven days after or net 90 you pay them 90 days after the bigger than that terms. That's right. And what you really want is you want your terms to be relative to the manufacturing timeline such that you're paying them with your customers money. So let's say it takes 90 days of the manufacturer your product. If you can get 120 day terms, that means you receive the product and you actually sell it before you have to pay them. That's what a negative cash conversion cycle is, right? You're fundamentally paying the manufacturer with customers money. That's ideal, right? Now, that's really hard to get to in many cases, but one, the longer your relationship you have with suppliers, this is why you go to China, this is why you go build relationships with the humans, they trust you, you build long-standing commitments, you pay more gross margin, sometimes that matters. And the manufacturer is obvious, but here's the thing you could do this with me. You do this with every body, right? So you come to me, let's I'm an agency. The one of the benefits that I have is that my cash flow to EBITDA ratio is like 95%. So in other words, when I pull a P&L EBITDA every month and I make X dollars, 95% of that is cash. I realize that month. Ecommerce, your cash flow to EBITDA ratio is terrible. It's way worse. So for me, I have a very cash intensive business where I make a lot of cash flow. So if you come to me and you said, Taylor, I'm actually willing to sign a longer term agreement or I'm willing to pay a little bit more, but I need longer terms done. For my business, my issue isn't cash flow. I don't have that problem. Mine is I want to make more margin. I want more committed dollars into the future. So there's trades that we can make all the time. And Kendalee, if you're big enough and you'd probably ask me for it, I'll probably grant it to you anyways, right? So you can do this with meta. You can do this in every place. You can try and find the maximum allowable payment terms with every person in your life. Three things, guys. You said three things there. I want to break it down. One was the cash situation. Yep. Who was obviously wanting to optimize for margin and then three optimize for length of contract. That's right. And you see that. I mean, dude, you see that with like a lot of like the email primars of the world, they're like, oh, it's, you know, is it month to month? Is it six months? Is it 12 months? Even with licensing, you know, with minimum guarantees and royalties, understanding and knowing that the account manager gets evaluated on minimum guarantees. That's right. So if I know I'm going to clear my minimum guarantee, but I'll give you 10 to 20% more on the minimum guarantee up front, but I want one to 2% less on the royalty knowing that I care about margin. I'm good with cash. That's right. Exactly. So the thing to do is, and this is just like it's the same as an employee. Understand how everybody around you makes money. How does your manufacturer make money? How do I make money? How does my business work? Is it cash intensive? Do I have to depend on a lot of loans? Do I have a lot of flow? Could I understand it? Same thing is if you're an employee in a business, how does this business I work in make money? That allows you to negotiate deals to understand to create mutually beneficial relationships because this isn't about being predatory. This isn't about screwing your partners. You want to have good relationships. It's about understanding, where is there a way in which the way you make money and the way I make money allow us to come to a relationship that's mutually beneficial. Love that. Yeah. I mean, I guess having a single unit dropship business isn't bad. Right. Obviously we're not paying for anything. Well, a customer pays for it and then I can get, I would actually contend if the ultimate way to buy inventory of your lenders isn't actually net turns its consignment. It's to say to them, I'm going to hold the inventory and I'm going to pay for it when I sell it. That's what you actually want, which is why drop shipping is a category that is so attractive to people is because that's functionally what it is. You're selling inventory that you don't have to pay for and if you get a good enough relationship with the supplier where they trust you, Roman Con who is a guy you should probably have on here. He's telling, oh, Jen. Is he? Okay. He's awesome. He talks about this where he goes to his suppliers and he says to them, I'm going to take this on consignment. You're going to get paid before my children. Like I'm going to commit to you that you will get paid for your inventory. Help me build this business in a way that's most effective that allows me to grow and be aggressive and investing and we will grow together and he builds trust and he builds authority and he builds credibility over time and the end result is he sell, he manages inventory on consignment. He's functionally drop shipping but he's actually holding inventory. Now you can scale like crazy as a business without having to go raise a bunch of debt or outside capital to in order to grow the business. That should be the ambition for your relationship with your supplier is that actually they would trust you so much that they would give you the inventory on consignment. No, you're going to move through it. A way for people out there to look at that is if you have one side, you have drop shipping, the other side, you have inventory in the middle is consignment. People don't like drop shipping because it's usually worse unit economics. Yep. And if you buy into inventory, you're getting any economy scale and good price. So if you do the assignment, you get the benefit of both. That's right. Exactly. Uncle Roman smart man. Yeah. Yeah. He's going to kill it for you. So you listen to those. But you realize, okay, and this is all I think what I'm watching happen macro in your industry would I it's like an evolution as hardship shows up natural selection occurs and brands evolve these skills. And so this is like I have this idea that I call the cash flow era, which is like we've gone out of this area of abundance that was the COVID era where we all got fat and happy and learned with growth. Then we went through what I called the ozemic era where we all had to get super lean cut off backs cut everything. And now we're developing into what I call the flow era. And this is all these brands that are merging these skills and abilities that they've evolved to make an e-commerce business generate cash. And they can and some of them are doing a fantastic job. And it's through tactics like the ones we're discussing that allow you to take a really difficult cash intensive business and make it work for you. So you can actually make money with you saying that I think I've said I don't even know probably two times of the podcast already man experience is so underrated and entrepreneurship like for me, I think the ideal entrepreneur would be someone you want, you know, I would say the younger the better, but someone that at least has been in the game since pre-COVID. That's it. Because those are the big waves. It was super easy from 12 to 19 where just like you could put a dollar into face a little earlier about. Yeah. Dollar to Facebook at four or five dollars. But if you've been through COVID iOS tariffs. And then this kind of another two, three years of just like figuring it out and you're here. I want to bet on that human. That's evolution. It's the tale of the world's times that natural selection breeds skills. And if I look at each of these arrows, it's easy to just sort of like dismiss them as, oh, that was when it was easy. But what we did in the COVID is we learned how to grow. We learned a skill of deploying dollars. We learned how to generate revenue, right? We didn't learn the finance skill. We didn't learn how to manage lean off acts, but we learned how to deploy capital fast, aggressive, make a bunch of stuff, build manufacturing supply chain scale. Go, go, go, go. That's an important skill. We learned it. Then we went into an era of austerity. All the capital disappeared. And we had to learn how to get lean. We learned finance. We learned how to manage contribution margin. We learned out of forecast. And each of those arrows give you a skill. And so the longer you live through them, the more of the skills you evolve, right? And so now we're continuing to move into channel distribution and product development. These are the skills of the new era, right? And so every time you're right, it's like a Pokemon that's evolved over many generations, right? Is that each of the ones that you live through gave you a set of traits. And so as you get to here now, you're seeing these brands that are like, they're behemoths. They've got all the superpowers because they evolved all the skills over time. Let's talk about those. You got five. Yep. You call it the flow air. Let's start with the first one. Yep. Constraint as a superpower. Yeah. So why is constraint the most important trait for brands? Because what it this idea of understanding my eukin unit economics and being disciplined about the point at which I am not willing to spend another dollar forces you to then go solve the problem a different way. There was a point in 2021 we did an analysis with a business partner of ours that found that 60% of the media dollars spent were net never profitable net 60% of the dollars never paid back over any period of time. Okay. That is a lack of constraint. That is the inability to understand what are my unit economics. What is my LTV? What is the period in which this is going to pay back and then deploy the media against it? This time I'll be quick. Yeah. So what is that a company that just raised a ton of money? Is it hundreds of millions of dollars and just bleeding EBITDA? That was the majority of the industry. Never made a dollar. There are some of the biggest darlings that are like the caspers of the world and like those. Yeah. Without knowing the specifics of any individual brands that I won't name here. But yes, there were five billion dollars of venture dollars that fluid in consumer economy in 2021. Those all got deployed into unprofitable media acquisition. Think about the all birds of the world that got all the way to public without ever generating a profit dollar. There are businesses that got really far doing that. Again, it was the era. It was what the market demanded at the moment. It was actually really logical in some ways because that's what the market wanted. The market pulls you towards what it wants. What happens today though is that brands have developed constraint. What happens when you're not allowed to just lower the row-ass? It forces you to go solve the problem in different way. You get creative around storytelling. You develop those peaks. You go do better creative. That constraint, if you've ever worked with the creative person, there's this sort of idea that if I give you a blank page and I just tell you make anything, the boundary is too wide. You don't know what to do. But if I give you a box and I say, okay, here's the limitation or here's 10 boxes. I want you to put one idea into all of them. It actually unlocks more creativity. So constraint is an important attribute to creative problem solving. When I say to a media buyer or to a marketing team as a finance leader or CEO, this is the cap. There's no moving it. Don't come to me with a solution that says, "Low-raise the cap, lower the row-ass. Go solve the problem. They will go solve the problem, find creative ways to do it." I've watched businesses after years of watching their cap to grade. Just reach a moment where they go, "Line in the sand, we can't get worse than that." And all of a sudden, all the energy of problem solving goes into something else. It improves product development, channel expansion, new peak moments, influencer ideas, all these things that unlock new opportunities for growth. I think with under the notion that everybody's trying to drive op-x down and with AI coming out, putting that on people, saying that this is where the buck stops, and you have to figure it out, I think, is a must. I guess the good thing to talk about in relation to the constraint is, let's go back to 2022. You're on the phone with the bank every day. Yes. During the holiday break to avoid foreclosures. You told your board, "I think you should fire me. I think I've lost the emotional capacity to do this." A lot of people listening have been there. Tell me about what happened and tell me about how constraint and what you did to get out of that. So much of my experience maps all of the partners that I serve. And so we rode the wave up with everybody else. We walked out of our office in March of 2020 with 50 people. We had offices in LA in New York. 18 months later, we had 200 people. We hired 150 people in about 18 months. We get to 2022. June of 2022, all the music stops. You have to remember at that time, when you're talking about this before the podcast started, all of our deal structures were a percentage of media. So it's 10% to spend, 8% to spend, and for two years, spend just went up. Every deal grew, grew, grew, grew, grew. Then all of a sudden, when the capital dried up, iOS 14 hits, and retail opens back up, everything just went down. And so brands that went from spending paying us 10,000 a month to $70,000 a month, very quickly went the opposite direction. I felt like I had no capacity to continue for it. I felt like I had failed. Everybody around me. There was so much disappointment I was dealing with a lack of clarity about what to do. It was it immensely difficult time that we rode through with everybody else having to stare a bunch of humans. I cared a lot about in the face and letting them know that I let them down. And nobody wants to deal with that. It's not an experience I ever want to have again. But that isn't a valve skill. Now I have this sense of the pain I'm trying to avoid. And a lesson about how to avoid we changed every contract out of a variable spend to a fixed business model. We reframed everything we did around marketing and finance. We built this system. And now three years later, we have were more than 50% larger than we were at our peak with half as many people. And so we grew the business and we just this past June, we sold the company private equity to become a platform. So we're off doing our version of M&A. But we never become that thing without that suffering. Like there's just no way. I love that man. What do you think is like the most common quote unquote constraint mistake that founders are making? Like what's the number one most common one? The pitch relation to efficiency of acquisition. I think that it is very hard to have your marketing team coming to you and saying, I don't think we can do this. This target doesn't work. And founders and CFOs often don't know. They maybe they think they're right. They're being reasonable. And so they go, okay, we can lower the bar. We can lower the bar. We can lower the bar and not capitulating and saying to people who you think are smart and are trying hard and are exhausted. No, no. It's as simple as that. Just kind of. I won't draw change the standard. Solve the problem. And what it might mean is that sometimes there are some people who have decided in their head that they can't do it. And it might mean you have to get somebody else to try, but you cannot lower the standard. The standard is the standard. And when you know that that's where the marginal efficacy of the business is, do not let someone talk you into the idea that you need to capitulate that standard. Find somebody who will work with you to try and solve it. Doesn't mean you will, for sure, but get people who are on board with trying to accomplish that object. Yeah, you can't buy into the macro economy. It's where we're right now. Everybody is noise. Yeah, it's all noise. It's all noise. It doesn't matter. Your job is to win anyways. It's to in spite of that reality. Now what? I've been told before. We all are. Yeah. Because we do. Yes. Yes. And like, I, I want it to be true that it's not my fault. Yeah. Like I would love it to be true that the failure of the company was a macro factor act of God. It doesn't mean that I suck, but it doesn't matter because at the end of the day, like it's all lose you lose you lose you want you. It's it. All right. Number two, product led growth. You typically hear a girl, you know, through like paid media or creative iteration. What's your rebuttal to that? But what happens is and I'll use this category of leggings as an example. We have a customer that grew their business on the back of fitness leggings. Okay. If you go today and you search black leggings on Google, you will see everything. A thousand brands and you'll see not only that, you'll see the best brands in the world. The Ori, Lulu lemon. You are now competing in an absolute knife fight with the best brands in the world. Whereas five years ago, that competition was much less. What that means is that the amount all the profit has been competed away in that product category for almost every every business. So if you were in a business with a product category like that and you were just yelling at your meta team, make the efficiency better, make the efficiency better, go do more creative, go solve the problem with the ad creative. You are likely asking them to accomplish a thing that the market has eliminated. Okay. And so sometimes what you have to do is recognize that this business might be a $10 million a year business and that the growth of your company is not coming from getting that from 10 to 12 or 12 to 15. It's going, all right, leggings are 10. What else can I add that's five? How do I get into shoes? How do I get into swimmer? How do I get into the next thing? And that product expansion unlocks that growth. And ideally, I'll go back to the born product example, which I'm using here is they recognize that footwear could be an off peak where they had a winter moment. And so for cash flow, they wanted to go to summer higher AOV, better gross margin, lower return rate, less LTV, but different economics in a way that supported the business needs unlock the category add another tranche of growth. Now, we've got 10 million here. We've got 8 million here. And you can begin to build an expansion of the business that recognizes the limitation that every category is not going to grow forever. And so a lot of brands are getting them into this. You use the rich example they went from wallets to backpacks to suitcases because they recognize the ring business is $20 million a year. And it's not going to be a hundred. It's just not what's there. The competition of the category, the growth, et cetera. We work special under lotion that it's shrinking, giving all the competition. That's right. And it's just not growing fast enough. We work with a large business in the musical instrument space. Okay, without giving away who they are. And they come in there like, look, our category growth every year is 3%. We're the largest player in the space. We're not going to grow 50% this year. That's not what's going to happen. So our job is to maintain our percentage of the category and grow 3%. They're aware of the economics of the category. Now, if they somebody came in and said they wanted to grow 50%, they aren't going to do it on that product. They're going to have to figure out something novel to introduce to the business. And so that's the tension is where is that growth going to come from? The new cases for the trumpets. Exactly. Whatever it is. So I've seen more and more brands are becoming aware of this. Go look at what grooms did. Go look at athletic greens. The businesses that got to massive scale on a single skewer are going, well, the growth is going to come from expansion into the next category and expansion into the next category as much as possible. And so brands are becoming realizing that product development is growth marketing as much as the media count is. And I think that's where this idea, the head of growth is a title that I have been very critical of because I think how to growth is fundamentally the CEOs job. They are the head of growth. And so right now what brands are realizing is that all used to be concentrated into fundamentally what was digital advertising. People used to say, okay, the head of growth is responsible for spending more media dollars managing the content and putting putting on ads. That's right. Yeah. But the reality is that growth now is as much an exercise in category expansion and product development as it is in media. And so if you want to grow next year, you need to be thinking about that at a unit level. How many of these units in a million a cell and what other things am I going to introduce? And the investment, the return on an invested capital of developing a net new product category is usually so much better than the next meta dollar. And that's where brands, I think CEOs and you see themselves as capital allocators. And if I have a million dollars, I could put it into the meta account that's going to yield X percentage over the year or I could put it into a product. It's going to have a different value realization cycle, but the return might be better. And for many brands, they're realizing that growth is coming from that effort. So from like a capital allocation perspective from a priority's perspective, like R&D and finding your next product that should be a priority. Absolutely. Yeah. And I think that the way I like to think about it is just like you would with your personal budget at home, is that when you want to make an investment, if you are living paycheck to paycheck and you can't make your mortgage next month, it's not the time to go make investment in a long payback period of a condo or something, you're going to go broke, right? But as a business, what you want to do is you want to build up a cash reserve. And when you get into a position where you can make a longer term, longer horizon investment, I could take $100,000. And if it doesn't pay back for eight months or nine months, that's okay. I don't get in trouble. Then you make that allocation on a horizon against the best bet over a longer period of time. So the horizon that you view the return on capital changes relative to the availability of your capital. This all comes back to the cash flow. Everything comes back to the cash flow. And what I think about brands doing is like when you win the cash flow game, you're building up some cash reserve. And I experience this as an entrepreneur, you go from sales person who's just trying to sell every day to survive. You're trying to just meet your expenses to all of a sudden you begin to build treasury. And all of a sudden I've got money in a bank account. And now my job becomes not just fuel the machine that grows the cash, but now I actually have to make decisions about what to do with this capital. And so entrepreneurs we go through this where we have to evolve a skill of capital allocation. I now have treasury. What do I do with treasury? That's a whole skill in and of itself. And now you begin to make these bets on different horizons because the payback period might be better on that store that you're going to build or the new product category than it is to just redeploy it in the meta. Guys, if you have cash in the bank, just at least we get in a couple of percent. That's right. That's a treasure now. Yeah. That's like where do you stuff like that? It just takes a long time to get there and understand totally know it. So you're picking your products. You got this product MVP framework for evaluating new products opportunities. Won't you walk us through that? Yeah. So product MVP is a way to look at your own matrix of most valuable products that you have. And what I look at is the relationship to the cost of advertising on that skew relative to the efficiency of value realization. So across the entire portfolio of skews, if you were to build a last month, you were to look at total unit volume sales. And then you were to allocate the media dollars against those skews and you were to look at an efficiency of like the raw ass or MER on the skew level. What you would find is that there are some products that produce more efficient acquisition than others. There are some that have better LTV dynamics. There are some that are underserved. And so as you look across that matrices of value, it's going to give you both ideation of how you should allocate the future media in an opportunity. But also where there could be investment into new category expansion. A lot of times this has to do with like unlocking visions of efficiency across gender spectrum or different categories tops versus bottoms or footwear versus headwear as an example where you're going to find that the efficiencies aren't the same. And so a lot of this is about trying to decide maybe colorway expansion or limited edition. Should I go after sports bras or leggings? Should I go after footwear or headwear? And some of that needs to come down to well, how effectively can I deploy media dollars into that category? And I just don't see brands do enough work of looking at the relationship between where is the media being allocated against the unit velocity sales and using that to decide then how should we think about what we should make next? And that goes into inventory on hand, yeah, and where you allocate the dollars for this MVP. You have margin, value, and popularity. So, yeah. So when I think about the opportunity to develop a net new product, I'm trying to solve for usually a margin problem, a volume problem, or a cash problem in different ways. So the cash problem would be the example I used before where let's say you have a high seasonal concentration of unit sales in January and the summer's suck. The problem with that for a lot of businesses is you have to place the PO for the winter in the summer. So often the problem with peaks like that that are highly like we call it bi-modal distribution of your revenue where there's two large peaks and they're very far from each other is that you have to place your PO in the valley and that tends to be a big problem. So what you want to solve for a cash flow product development cycle is the idea that oh, I need to find something in the valley. I need to find a summer product. I need to find something that can help to smooth out my revenue curve in that period that can be a cash problem. Volume problem is like, okay, where is there a trend where the category is expanding? So in supplements, you see this lot where it's like, okay, creating gummies, you use that example, maybe there's this kind of colostrum became a really popular thing fiber people talk about. Where is this opportunity where I might be in a market that's stagnating and I want to get into one where there's velocity. Sign up for things like particle where you track sales velocity for different categories and find those trends and opportunity that inform innovation. The early has product market fit that meets your ICP. That's right. Yeah, you're selling protein powder and then you go into creating and then you go into fire. That's right. Then there's margin expansion, right? So this is looking at and going, my gross margin is a business is 50%. I've got bad value to weight ratio. How could I actually innovate a product that has better margin and that's just allowing you as a business to be more aggressive on the marketing front to help for informed new customer acquisition because instead of needing a two to one, maybe you could develop a product that only needs a 1.4 to one and all of a sudden you can continue to increase the volume of acquisition without doing it at an efficiency level. And so when you go to do product development, there's this real question about like, what problem am I trying to solve? And what I watch brand these teams do is they sort of just again, they do these things in silos where it's just sort of like, well, what is the next cool thing that I want to create versus like, what is the business function or problem that I'm trying to solve? That's most important and that MVP idea gives you at least a rubric to start to imply against what is likely thousands of ideas that you have for the next product that you could develop. And ideally you want them to be all three. Yeah, there's trying to be a product that's blowing up right now. Or the mini category. Yes. It could be a product that's blowing up right now that has super high margin. Yeah. And that's, and so if you think about scoring them all in a category, people do this with like, ice is another framework for impact. I don't even know what they all stand for, but it's just like, how do you build a framework for optimizing against the idea that's going to be most impactful to your business? And I think you really got to understand, do I have an EBITDA problem? Do I have a growth problem? Do I have a cash problem? And usually your business exists in one of those. Sometimes it's all of them. But do I need a grow top line revenue? Okay, I got to find something that's going to move volume. Do I have a margin problem? I got to find something that helps my gross margin profile. Well, this is something that I could go to my vendor and just get the best terms on. Like, what problem do you need this product to solve? That can help you idea or get clearer on which product to go after. Guys, that's a bar right there. That last line right there. That tells you everything you need to know. As far as product portfolio goes, as far as prioritizing resources, you have another framework. It's about champions, growth drivers, underperformers, and hidden gems. Yeah. Each has a different strategy for investment, liquidation. How would you look at kind of each? But if we go back, if you were to do that exercise where we call it the product matrix, every skew, how much media I spent on that skew, and you were to assign what you're looking for. So a hidden gem would be high volume low media investment. Oh, shit. I'm actually selling $30,000 a month of sports bras that I only spent $1,000 to do it efficient. Yeah. What if I increased my investment in that individual product category? Okay, let's get the creative supply chain fired up. Let's get some creators. We're going to make an investment in trying to sell that skew. Your champions tend to be the highest volume at the best efficiency. This is generally every brand knows what their hero skew is. You know where the driver of volume is going to be. But what I find is that there's a lot of these hidden gems. Now, alternatively, the champion is a black t-shirt. That's right. Exactly. But the other side is like high inventory low volume velocity. That's a problem. Now I need to go turn that's the one I need to go turn into cash. I need a different strategy for it. So every skew in some ways is its own little business. It's the way to think about it. And I have to treat it then with its own market demand. And this is another thing I'm a big point of which is like even within the same categories because skew can be a little bit challenging. Let's use t-shirts because you set it skew usually exists at the color and size level. So you'll have a categorical product. It's the black or it's the t-shirt. And then it comes in black small, black medium, black large, black extra large. That's where the skew gets assigned usually. And then you'll have different colorways sizes for every one of that product categories. So what will happen often is that we price all the skews the same. I know where you're going. But the reality is like the demand for them is not the same. And if you go on to comfort.com right now or you go to Nike.com what you're going to find is that the bright pink high top costs less than the black one because the demand is not the same. And all they're doing in that case is they're playing the same game I talked about with the liquidation that you can do on the media front. They're fundamentally just price mapping to the actual demand level that exists for the skew so that they can move it. You made a bet that some amount of extra larges in some color were going to sell and you were wrong and you need to allow the market to dictate the point of liquidation for that skew because there's some price point at which it'll move. It's just not the one that you have listed. And so as inventory begins to aggregate on some of these outlier skews there's an opportunity to more dynamically price the product. And not only from a black t-shirt to a red t-shirt you could probably go within the black t-shirt and I would imagine the medium and large are going to be more money than the triple XL. That's right. And so what will happen so often what I see brands is they sell out of the core color and size on a skew way before everything else. Of course. And what that just tells me is that there was a mismatch of price and demand for that skew if all of a sudden and that's what kills the velocity of an ad account is like you have a thing it takes off it's ripping and all of a sudden mediums are gone all of a sudden black is gone and you know what happens the ad tanks right and that's where I go wait a second we need to just slow the ad account down because there's nothing that kills an ad account that's machine learning optimization over time quicker than oh this is taking off oh now conversion rate top plummets in metasize that ad sucks they don't track your inventory allocation they don't understand like oh as soon as that repopulates I should respawn on that ad it's not an input in their system right so as far as they're concerned that creative sucks it's gone stop spending on it when really it was a winner and so this this ability to map the unit velocity to the demand is so important for keeping a healthy ad account running over time they are not a partner but I endorse intelligence which is a price test and yeah we found out that we could charge a lot more and there would not be drop off in velocity that's right it's very crazy and so every brand has a different elasticity of price and so you want to find it at the product level you want to find it at the skew level and I think that the more that you can do that the more that you'll realize the overall value of the total batch of inventory you have I just want to touch based on before we get off that is the growth drivers with growth drivers are those the new bets that you're taking that potentially could be a champion that's right that's one where I'm going okay hey hidden gems have disproportionate efficiency this is where I see revenue growth over time but I've kind of held the investment constant right so this is where who I'm seeing an increase in spend and revenue but now I'm going to make a disproportionately sized bet we're going to size up here and so we're going to scale into this opportunity more than we have been we're going to find out where the top of this market is because it's giving me signals but maybe we've only gotten 10% each month this month we're going to make a 50% growth driver Brett because we have a trend line that suggests that there might be more opportunity that's when the product planner gets a raise right exactly that's right yeah got you awesome and what about any types of process for kind of testing the man I mean for me I don't really know if people still use pre-orders but what do you recommend for someone that's testing into a new I think that if you can't solve for the net terms that pre-order becomes your solutions to that problem right so if you can't get your supplier to allow you to front the cash you're going to ask the customers to do it right and that's the trade that you try and make all in all directions and I think to use comfort again I think that when you have enough demand you can get away with this you can say hey new skew is coming it's hot and it's awesome pre-order now at you know good price acts and you can front load all of that revenue to yourself because they're driving enough velocity that's right immediately that's right demand for it yeah hit the moq like immediately that's right and so some of that is it it also helps you to map the PO is you you can actually understand the demand clearer when you do that so pre-order is super powerful what I would say is that it's a lever like net terms are which is that you have to understand your customer appetite for it what I'll say is that introduces some accounting complexity you can't realize the revenue on your P&L until you've actually fulfilled the order right so you do have to be a little bit careful about understanding that you're going to introduce cash flow benefits and accounting complexity on the P&L side so this happens a lot in the furniture business where it's actually pretty normal for there to be really long lead times because it's made to order is another way to say pre-order right is that you order it and then we make it is a fancy way of saying you're going to pre-order my inventory the two risks that come with it is that because you can't realize the revenue there tends to be unknown cancellation rate so the customer has the right to cancel their order until it comes until it comes and so what you have to be careful to model this is the same thing the same issue with buy now pay later is that when brands introduce that what's often unknown is there's usually a much higher return rate or try before you buy is a similar idea and so you have to be careful when you do the modeling of the efficiency on a pre-order is that you have some unknown cancellation rate and that's going to reduce the actual value capture on the total PO so these are all pieces of that journey and it can be really powerful if it exists but you do have to be cautious with biggest mistake brands make when expanding their product line they don't map out how much expectation of media it's going to take to move the volume that they placed the brand I was in planning with they have 20 million dollars of revenue expected on a new skew that's coming out I asked them how many media dollars do you think it's going to take to move the 20 million no idea it was a expectation of demand devoid of the demand creation plan you have to say okay we're going to place a PO we're going to generate this many units and here's how we're going to sell them we're going to sell this many through email and SMS to our existing customers we're going to sell this many through influencer seating paid media at this efficiency is going to move this amount of volume therefore I need x dollars and that's the demand plan that supports the actual PO and so brands will make the actual inventory decision independent of understanding the actual allocation and that's directly tied to kind of the cash cycle within that PO that's right and like the assumption of the efficiency of the new thing is one of the hardest things to get right because you have no historical data and so you also need to assume really wide error bars on things that are unknown if you're if you're a brand that's selling wallets and you're getting ready to go into luggage like you have to be really careful about the assumed efficiency of that category and the more that you can place a small bet that scales into a large one the better off you're going to be yeah just low moq guys that's it that's our batch orders that's right and when you send out the organic email or text just pray to the gods that a good philosophy I'll give you right here in your backyard so we're in LA right the best brand I've ever seen at this is color pop so color pop you know pop okay so color pop is a makeup brand here in oxard a little north of here and they are owned by seed beauty which is a manufacturer that also did Kylie's Kylie cosmetics and the way that they operate is inside of their facility in oxard california is a manufacturing lab to produce about a hundred mark so what they do is they make the hundred units on site on location put them on the website test demand that in place the pio and I think this is going to become a much more common thing where you have two different supply chains you have a flexible low moq gross margin doesn't really matter supply chain test and then you have large scale pio supply chain and so this is like to me what it gives them is what they would do is they'd watch ulta calm excuse trending make it right now get it on the website within 72 hours take advantage of the trend test the demand for it run some ads get the efficiency now you place a pio with real understanding that's how you create and win this game like the way you die in this game is bad inventory purchases so how do you de-risk that as much as possible and that kind of internal supply chain where you think about these things have two different functions large scale supply chain fast flexible who cares about the gross margin on those skews doesn't matter I'm not trying to make money here I'm trying to understand a man and mitigate risk that's right yeah George from represent he was on he's doing that and I'm throwing it out there I'm just talking to the gods right now I want Steve Madden on his documentaries absolutely crazy and what he did he's like the pioneer of this I don't know if you know the story but he his time square location obviously had the highest velocity yep so he would be producing skews at 8 a.m. today and then he put it on the floor tomorrow at 8 a.m. and he'd have this kind of baseline of sell through like all of it sells more than 15 units it's a win because time square is the velocity and it drives the trends so if you think about return on invested capital right there's two parts to that equation there's the potential return the amount of dollars and then there's the cost that it takes to do it product expansion what creates risk in category expansion for brands is that the cost is often pretty high you have to spend a lot of money so that makes it so that you have to generate a really high return in order for it to be worth it so a lot of times people think about this part of the equation they can how much value could I create off of this but they don't think enough about de-risking the cost to test the new category so if your color pop what you've done is not actually increase the volume you've in you've decreased the cost of every bet that you make and that increases your return just as likely it makes you a better better right and so I think in that case rancher think more about how can I make it as cheap as possible to test demand for new things that gives you a massive advantage of everybody small batch wait lists that's another good one pre-orders as well let's move on to the next one number three of five story not iteration we've talked about this briefly I just want you to just get any other thoughts what are you seeing out there as far as I think that the art industry has collapsed around the worst creative strategy idea ever which is this idea of iteration make an ad look at the result create a change fix it iterate iterate iterate optimize the hook optimize the box you are what you are doing in that scenario is that you are optimizing for the local maximum like a really tight band of potential performance change right small changes equal small change to outcome and so the almost every brand's creative system is this illusion that I make a set of ads I analyze data and candidly very poorly very poorly and not very data driven actual analysis of creative and then I make some change to the ad and I try again and I try again and I try again and I try again okay and that represents the entirety of the creative workflow what I would just say is that we go back to the stories I told earlier about born primitive or the international women's day is that there needs to be some large portion of your effort that goes into creating stories that matter not iterations on ad hooks I'm not saying that some amount of time can't be spent there but I'm just saying that we are under allocated to breaking the model to disassociating from the local maxima and generating a return that's bigger than anything else we've ever done before and that's not going to happen through iteration that happens through an unlock of a novel idea or concept or story that's bigger than anything you've done before yeah I think for story I said it earlier but I just want to repent down this is all about I mean it basically backs into cashier but it's about efficiency and how does this story drive a more content and be more distribution which just gets you more eyeballs and more conversion yeah so it's just how does more people talk about it that's really what it comes down to that's right when we so my brother started Kalo ring we launched it in I don't know 2016 selling silicone wedding rings first silicone wedding ring on the market okay and when we started we had no idea which market the demand was for my brother liked to work out he built motorcycles he hated wearing a metal wedding ring so he created one of the silicone okay and at the point it was to solve our own problem so we started selling to these people then we started to we had a woman reach out and she ran a blog called firefighter wives okay and what he said was that hey my husband's never been able to wear a wedding ring to work a day in his life because ring of all gen where you literally get your ring caught on something and it rips your finger off is a risk and so firefighters police officers people in the military aren't allowed to wear wedding rings holy cow all of a sudden our world got unlocked to this idea that there were all these different places where we could go and tell a novel story in a compelling way and unlock massive demand so in each of these categories there is a cycle of okay let's go after firefighters and let's take ads and let's try and make them better and create different stories but the real thing that kept unlocking the next transfer growth was ooh crossfit let's go build in relationship and attachment and find a charity partner and go find the best influencers and build a novel story into a new area and in so often that the next big unlock the thing that moves you from one tranche of opportunity into the higher tier is not just staying in the same place and trying to refine the story it's to go build an entirely new one and I think brands just get caught they find a pocket that wins and then they just drill it into the ground and they get stuck on this hamster wheel and so instead it's like okay this is that back goes back to that idea there's two rhythms in business there's the day-to-day improvement efficiency execution but somebody has to work on this counter cycle the one that looks out and goes okay how will I take us to an entirely new tier of opportunity find a new cohort and tell an interesting story to that because right yeah four or five let's get into forecasting and cash we've talked about a lot so I just want to ask you one question on that what do you think is the most invisible cash flow killer in e-commerce I know you've seen a lot of P&Ls out there yeah invisible cash flow killer it's we've talked a lot about the so if we think about the biggest buckets of spend it's add dollars it's your inventory those are the two largest buckets and then your op-ex is after that so we've talked a lot about the supplier terms and everything in there I think the next piece is just inefficient add dollars or a massive waste that there are so many places where brands are out beyond their marginal front here and then the next dollar of spend is a loss right and so the easiest thing to do inside of every business in the world is to walk in and cut that tronch of spend and that is destroying cash most clearly this goes back to the first point of constraint and so I think that I know that's not the sexiest answer in the world but you just got to follow the bulk of the dollars to find the biggest potential wins and then unfortunately the reality is the third thing is labor is that there's a stark reality that most people are not driving incremental value to business in excess of their cost they're just not and the other thing I'll say is that e-commerce if you look at the flow of your revenue the idea that your labor pool should be fixed over time against a business that is highly seasonal e-commerce is a wildly seasonal business and so the idea should be that you have flex staffing way more than you realize and so FTEs full-time employees that have the same cost in months where you have low revenue and months where you have high revenue you should try to figure out how you can model the actual labor cost of your business more in line with your revenue I like this little rabbit hole here the baseline of your full-time labor force should be at 12% of your lowest month of the year say that again so if I look at your revenue every month there's a month where you do a million there's 800 700 600 take the lowest point okay my payroll in relationship to that month should be the thing that is my baseline of full-time employee staff I want to have the right relationship in the lowest point everything beyond that should be flex staffing wow so you're saying you're you know if you're doing 501 month or a million a million another month regardless your base should be 60,000 because that's a lot percent of and then everything above that you're sourcing out that's right and in what brands do so often is they accept the idea that in low months they have to lose money and then in good months they have to win money I'll just tell you that there is so much labor that is willing to work in a seasonal or an outsource or an a flex staffing model whether it's agency freelancer even people that you hire for periods of time the the labor pool has never been larger optionality for brands from the Philippines to Argentina to Brazil to people in the US to AI the idea that you have to maintain full-time staffing in periods where your business can't support it financially is just not true I'm actually the mayor of the Philippines I love the Philippines I've been there for months at time we've uh how many of them have in the Philippines now yes we got we got six it's unbelievable and the the other illusion is like I just the global talent pool is incredible it's incredible guys Taylor is basically saying that you should fire like 20 to 40% of your staff basically I'm not afraid to say I'm not the real I see his operators not employees so that's that's fine for people out there but here's the thing and what I look I have employees they listen to this they're going to hear me and what I what I think is the most honest thing I can tell them is that at all times your obligation is to deliver value and access of your cost at all times and that's the most honest thing I can give them and if they want to grow in my organization actually the best thing they can do is deliver more value such that I could pay them more money like and I am excited to do that and so at all times the most honest thing you can do is give people the truth about the market and what optionality we have as entrepreneurs if somebody in the Philippines can do your job at the same level for half the price then the market price for your service is not yours it's the one that's half that's actually the market replacement cost sports are a perfect analogy for this it's the easiest place to see this play out people go to free agency and people go well you're worth half of what you were before person X and that's just the reality is that as you age your value depreciates and so suddenly all of a sudden the market plays out in a very real way and we all accept that when watching our favorite sports team we I'm a Lakers fan I hate that we're playing LeBron James as much now as when he was 30 years old that's criminal his production is not as good and it won't continue because of that right and so the truth is the same in every labor market that's capitalistic is that it will move towards the price of replacement cost and the global market is changing that in AI is changing that too overseas is like 20% guys for those people that are not arbitrage that you should definitely take a look the fifth one is progressive peaking we're not going to get into it we talked about a bunch about usually have you have your one big peak and then black friday find the other ones to drive and the key with the key with the progressive things we just haven't touched on enough is that usually your moments like black friday are a value realization off your existing customer base or people who already know you so if you can create a large scale new customer acquisition moment in october or november that group will over deliver for you in those moments of peak realization like you again we've talked a lot about rich just because he's your audience has heard about them they do their big giveaway for their car in september and that's very intentional a big moment to go out and acquire customers ahead of those peaks build a final september that's it over for sure all right guys we're going to get into quick trick we have a bunch of hot takes a lot a lot of questions we got here we're going to start with you said the next wave of nine figure e-commerce exits won't be brand sass or agencies they'll be shons yes what is a shon software enabled agency so i know you have a bunch of people in your audience 25 to 35 deciding where am i going to allocate my time and my precious life force towards the greatest opportunity i'm here to contend that the best business model in the world is human services today twenty twenty six that if you want to make money you want to have a high floor and high exit upside the best business model in the world you say cash flow and exit both is agency is human service we're going to pop up shugnai steve wise with a massive exit let's go through this look this up w promote power digital tenuity mute sex common thread collective every one of my direct competitors that i've grown up with has sold their business multiple times to p_e_ and multiples better than any consumer business that you've seen the idea that agencies don't have exit potential is wrong it's fundamentally wrong because what's just what p private equity in particular what they value a business on is its ability to handle debt and you know what kind of business can handle debt a business with high cash flow and predictable cash flow and so the more leverage you can put on a business the higher the multiple you're going to get from private equity the more they're going to want to be involved that cash conversion cycle your talk that's it you know has a terrible cash conversion cycle e commerce have you this or you know where there's a ton of gross margin pressure software right software was valued because of the predictability of revenue there's a metric called net revenue retention it's the most important number in my business model and in software of the revenue that you had last year how much what percentage of its stays next year software is famous for its revenue quality 120 percent net revenue retention all the customers I had last year they generate actually 120 percent of their value in the previous year my business 100 percent that revenue retention so the idea that I can produce the same gross margin the same operating income the same revenue quality in the world right now where AI is creating the number one leverage against labor all of my cost is labor we have expanding margin as a result of it AI unfortunately doesn't create as much leverage for your business in in e commerce because there's atoms that you can't actually AI away the actual physical cost of the product yeah yeah right so the revenue quality is the same the cost of capital or the cost of starting is basically nothing you can be making cash flow immediately you don't have to go raise money and the exit potential is just as good as in any industry there is I would say an ecomma correct me if I'm wrong I feel like we're at like one times revenue and read a 10 times EBITDA multiple yep and again this is February of 2026 that is I mean it's very different all over the place agency where we at eight to 12 eight to 12 the bottom yep off EBITDA let's say from two million two million in EBITDA to five million in EBITDA you're probably in that closer to six to 10 range from five million to 15 million you're closer in that eight to 14 range 14 right now like again this is all about understanding value of an enterprise depending on who the buyer is is all predicated on what is the model that they use PE uses a discounted cash flow model they look at future earnings they finance debt on top of the business and so all of lending is just a confidence in your cash flow it's a confidence in your future cash flow and if you have contracts that are annual contracts you have proof of high levels of net revenue retention that is a high level high free cash flow to EBITDA ratio that is a high level of confidence environment to lend into e-commerce is the exact opposite it is horrible relationship between free cash flow and EBITDA it is incredibly difficult to service large amounts of debt when you're in this business because it's so capital intensive for an inventory as a business you have none of that expectation on the service side and the software enabled part of the agency you're just talking about that's going to lower your op x because of what's happening yeah software the problem with software right now is nobody wants a tool everybody wants an outcome so I don't want to go pay for a software I want to pay for some result and so what you're seeing software businesses have to do is they develop these large customer success teams and the lie about software especially in the e-commerce industry is this idea that it's really high gross margin because people look at the dev expense against the resource but they hide customer success as marketing or sales or something else but the reality is the actual gross margin of the product is much closer to what it is in mind because the customer success piece of it is so highly intensive they have to do a lot of work on the human capital side to spend time to make their product valuable to people but what I say is like two things are happening with you buy a software you have to hire an employee to make it valuable if you hire an employee you have to buy software to make them valuable a software enabled agency gives you both for less so you can hire my people you get all the incrementality all the attribution all the forecasting you don't need to pay for any of the software we have all the technology and you get the person to deliver the cost at a lower price and you're buying the outcome obligation on us which makes it stickier and you get a longer ltv and just go watch like the markets we're sitting here today it's like February what is today February 5th or whatever we are in the middle of one of the largest stock market collapses for software ever the last four weeks why because everyone's realizing that AI is driving the ability for brands to build the software in house right and so there's this question about where is the value going to accrue and my contestation is the value cruise to the person willing to be accountable to the out and so the problem with software is it's not accountable it says here here's your tool good luck go make it work for you and the problem with just even the human side is that they need that resource so the question is who is the person that will put their hand up and say I will deliver you contribution margin and if I don't fire me and I think all the value accrues to the person who's willing to be most accountable the reality here is no one really gives a shit about how you do it they just they just want done that's really that's really the piece of set your stuff I don't want to have to analyze like how do I make this tool is your tool going to really accomplish I just want you to say I will deliver you the outcome okay cool I'll sign up for that yeah so many of these AI tools I feel like we're about to get to the next wave where people are going to start doing more of this show and stuff but a lot of the one it's happening in every one of them go look at icon go look at what Drew's doing in iris all of them are turning into okay we will actually take our tool and make it valuable for you and we'll sell a service on top of it it's every single one of them I'm watching I mentioned Leo at final loop they're they're considering an optionality around launching a service business on top of it they're realizing that the obligation is the tool makes you money and if the brand owner doesn't have time or energy or resource or availability to go in and figure out how to do it then they canceled the tool and the tools are awesome the problem is somebody has to learn how to make it effective a hammer by itself does nothing right someone has to pick it up and wield that thing it's so it's so funny you say icon because this goes back to the experience they started as a software tool and realize that people weren't getting the results that they needed so now they've got every single one of them a quote unquote agency business that's right love that I'm into it who's the most important member of a modern marketing team oh that's a great question so I am going to contend there's a role emerging that I call the profit engineer okay so this is a phrase if had a growth was the most important person of the previous era in development something happened where there used to be a dev team that included a product manager a designer a front-end engineer in a back end in the year that was a dev team right inside of every software business in the world they became well became known as a full stack engineer their job was to do all of it in e-commerce a marketing team used to be a head of growth a media buyer creative strategist maybe meta and google media buyer and retention strategist right all separate members of function the same team well guess what that's going away that's not four people anymore that's one person we're calling them a profit engineer it's the evolution of the full stack engineer in development it's the same thing that's happening in e-commerce it is in tight media buying for one brand is not a full-time job creative strategy for one brand is not a full-time job not with AI tools and their capacity to help you with research and output and briefing and all those things there is no way any one person can do enough work to sit on one ad account all day long and develop 40 hours of work such that they should be a salary to employ those days are gone and so what you're seeing is the convergence of expectation that someone has the ability to forecast a business manage the media account to find the creative uploaded in the creative manage the expectation design the email calendar all themselves that's what we expect of our people that's what the systems are existing to do and that's where the future is going and that's stack of all of those like three four five different skills that's which one do you think is the most valuable of those I think it's the capacity to connect the dots between define the expectation and the authority and capacity to control the outcome is that what's happening is the feedback loops between the person who set the financial goal again this goes back to the could disconnect between finance and marketing and the person whose job it is to deliver it is a chain that's too long and too diluted as you go great I need both you set the goal and I'm accountable and I have the authority and capacity to deliver it I don't have to depend on this long chain of people where the message gets degraded as I go and the connection to the goal I don't understand the goal the goal wasn't fair it's so and so's fault it's that's fault it's inventory's problem it's one person on the hook accountable to defining and delivering the expectation yeah I would argue that it's actually the person that understands and knows creative because I think all the other pieces kind of the finance and numbers there's are going to be very objective in nature because we're going to have so many tools tools like you have the profit system yep I think that there's always going to be subjectivity on the creative side and what I've seen it's a lot of these numbers type people yep and they don't understand and know creative I think the question is just are you sure that the AI isn't better at creative than you are you sure that a human should be making that choice and I'm not I so I'll give you an example of a study do you know Eric Seifert I know you should have him on here he's awesome he runs a great podcast and he had on a research team and they looked at AI creative through three different workflows one was humans themselves one was humans briefing AI and one was AI by itself independent the interaction right now the illusion is and it's because we humans desperately want to be important in necessary in this process and I feel this too is that we think that humans should interact with a machines to do the creative and that's where the leverage happens the problem is we are the problem we are the limitation because we have all these preconceived notions about what will work and what should work and were horrible at processing data in this model when they ran this study the one that outperformed all of them was to allow the AI to work independently of the people when you think about the exploration of ideas one of the problems that we have is that we have preconceived notions about what will work we have biases we have fears we're afraid to touch certain taboos we have all sorts of reasons we will and won't try certain creative based on our own individual experience and AI doesn't have that same limitation if you allow it to optimize for a specific outcome and so I think what's going to happen is we are right now on the third rail the idea is I saw a tweet the other day that was like you know in meta there's all these AI enhancements now or they'll add music to something or they'll automate the creative for you and everybody's like this is a terrible idea right somebody was like the tweet was something of the long lines of like hey zuck hell no I don't want you to DJ my static images because there was like an option to add music to it I'm just going to tell you that person is dead they're dead they are so wrong and so far from being able to leverage these tools abilities to test through thousands of variations of things and deliver the most efficient result I scary hours is around the corner it's it's already here in 2026 what do you think about madness because this is something that people are starting to talk about that on the creative and the media bond inside they're just going to do everything so I'll give you an example of how I've been playing with manos because the hardest thing I have right is my own ability to set appropriate expectations of my team in this world how many pieces of creative should my marketing team be able to produce five five thousand fifty thousand how good should they be I don't know how to level the expectation in this world so I'll give you an example of like an outbound sales rhythm in our world so I work in service okay we work with a bunch of golf brands sunday red travesty Matthews bad birdie a bunch of golf brands okay bar stool sports all these categories so we have this incredible case study so I go to monos and I say here's what I want you to do here's my information about the success of I've had with these brands I want you to build me a deck of that is an industry report on the performance of golf highlight my success with these specific brands build me a list of all of the CEOs and CMOs of every company in this sector between this size and this size design me a workflow that I could message them on LinkedIn and what I should say and then give me the option to deploy that 10 minutes later the whole thing is done that outbound sales strategy for my business would have taken 90 days last quarter how do I how do I possibly write size what I should expect for my team when that's possible right and the deck is sick and the research is good and like yeah it's it pixel perfect no but like can I edit that really fast yes but the point is like that whole modality here's every contact you could possibly want here's a sick deck that here's a message you should send them here's the follow up here's what to do next you want me to deploy it god like it's like it's an infinity x capacity for what is possible six months ago guys the passion the passion is seeping through op x is going to 3% of top line revenue it is that is that is crazy joke is like you and a bunch of agents right like that's that that's the thing or maybe not even you I hope it's slow down a little bit you've talked a lot about using an employee stock ownership plan esop to give employees equity can you walk us through that how it's impacted your business this goes back to the idea that the dashboard I show my people I want to it's closely aligned to my incentive as a person well the problem with that is that the if the actual financial incentive of your employees doesn't also match then their behavior won't either I'm a big believer that it believer that incentives drives action and that if I want to increase shareholder value is the primary thing I care about then I have to make my people care about that too and the best way to do this is to make them owners we've done this in two ways in inside of my company one was through an esop employee stock ownership program which is a really cool vehicle what it basically allows you to do is to bring in a debt to finance the purchase of your own equity from the existing shareholders that gets put into a trust and a tax-free way for your existing employees that they realize over time it's really cool but what I would say is when you give someone equity at no cost to themselves you rob them of half the power of ownership which is risk and so the second thing we did in the company is at one point we had some passive partners that we bought their shares back and we invited our top 20 employees to write checks into the company to purchase shares all of them did they wrote every one of them wrote five figure checks and these are people on salaries like W2 employees saving up their money that was the most effective thing we ever did as a company because we introduced both the upside of the value creation and the risk of loss and that's part of the beauty of ownership is that if you only do one the esop program was cool it invited people into understanding ownership there's a lot of beauty in that and I believe in community capitalism is a really effective effective way to run business but it just it robbed them of the risk and when we did the buyback thing where they actually wrote checks it transformed their company they're vested yeah and they never left and that was the other thing and in this esop is this like best thing like with a cliff it's right you got it over time that's right so the way it gets distributed is it gets distributed grow rata you get an allocation every time the company makes an allocation out of the trust as your salary is a percentage of the total payroll but if you make a hundred thousand and the company payroll for that period was a million dollars you would get 10% of the allocation and so we sold 20% of the company to the esop so 20% of the company shares were in the trust and were allocated they have to be allocated over a five year period and so you make an allocation every year to the base of employees because you want to keep it in the hands of the employees and what's cool about it is if they leave we actually have an obligation to buy it back for them and so it's actually more liquid than most stock too yeah so it's really interesting so when we sold CTC for a human service business is we had 60 people that made six figure checks or better and man good for you love that true or false LLM's will be a real revenue driver in 2026 revenue driver as a source of traffic or transactions will occur in them which do you mean either are I think I think they will let's define real as you will see up to 10% of revenue either sourced from or occurring within them for some businesses I think that will be true I think that we are moving to a world where the website is diminishing in value and it's omnipresent commerce people like to talk about omnipresent commerce I like the idea of omnipresent commerce whether it's in your glasses in an LLM on tiktok shops it physical retail on amazon you want to be everywhere where the customer is and I think an LLM is where people are spending their time I like to say that transaction always moves to the point of discovery wherever people are discovering products they will try and transact and the closer that you can bring those things together for them the easier it is the less friction exists between the discovery and purchase the better off you are I think LLM stuff all the attention transactions will happen from them why tiktok shop is winning that's exactly right guys I'm going to put a form down below I just paid $1,000 to a really smart human to analyze my company and others on how to get ahead on the LLM side I highly recommend it I'm going to put a type form below if you guys yeah ACM UCM those are the protocols for understanding the commerce structure the how LLM is are going to absorb your product feeds both from Shopify a chat GBC and Google look those up and try and make sure that you're feeding the correct data back to the LLM's it is absolutely incredible how I mean I paid her and then I just went at like 15 companies like big companies none of them were doing anything right it is crazy to get ahead I mean I've seen companies you want to talk about opx as a percent of revenue that had hundreds of thousands of backlinks and at a 15 year head start on SEO and just literally their company is winning they are doing their opx is so low they're doing like no marketing just because of SEO yeah exactly right yeah get ahead of that that's one of those games too that you want to talk about the counter cycles of business is that you have to make this investment with a horizon for longer you just have to biggest lesson you have learned from the legend David Oglevy yeah it's only creative if it sells right I think the the general idea is that the obligation for us as advertisers is that we are not artists we're not it's not what we do we are in an industry where the obligation and expectation and evaluation of our work is to drive a business outcome and so I think that the more that we can subordinate ourselves to that reality the better our creative work comes guys go consume all the content you cannot David Oglevy absolute legend tell us about your good verse bad role documents what are they and why do you think they're so important I think when you create a role a job description so often we are trying to tell people what it looks like to be good at it I think sometimes it's equally as helpful to tell people what it looks like to be bad at it what is this role not because sometimes the aspirational identity of the role can come alongside things that are also really detrimental and so this is actually comes out of I think it was it's an A16 Z thing it might be a Ben Horowitz document I forget exactly who wrote it but it was like good software engineer bad software engineer and so the idea was right job descriptions that include both the good examples of the role and then what it's not so you say a good a good media buyer does this a bad media buyer does this a good media buyer does this a bad media buyer does that and it just gives people a better understanding of how their behavior can best come to life in your organization print it out and put it next your computer you look at it yeah you can see I should not do this or I should do this what is working better on meta image or video I don't I hate the frame I think that you can have a great image out and a great video ad and that in and of themselves the formats are mean I think that your job is to deliver the communication as necessary the question I like to ask for every product is what is everything somebody needs to know in order to make a purchase and if I'm selling like I bought myself a 3d printer the amount of things I need to know to make a print a 3d printer decision is like a thousand things what kind of a what's the right plastic that I need how big is it how hot does it get is it good for kids what software would I use for it like you have to answer a lot of questions so you're advertising funnel needs to do a good job of that if it's a static image ad you're landing page better be freaking awesome if it's a long form video ad drop me in checkout you've already given me all the information so I like to think about the design of the entire funnel relative to answering that question what is everything I need to know in order to make a purchase if I'm buying something very simple that I understand static images probably highly effective at that you don't need a lot of explanation so your job is to think about the product to try and answer every question the customer had and to decide am I doing this on the landing page or the or the ad and just ensure that the funnel covers all those questions hang of context should people still be using old creatives for ads yeah never turn off an ad what's the best performing ad format in q1 of 2026 that you have seen I hate this question I am I am probably the person that believes the least in the idea that there's a transfer of value associated with format I actually think I I scribe way more to like the set go didn't purple cow idea which is to say that like your replication of an idea that works is actually the degradation of its value so the more that we all go oh post it notes are awesome and everybody goes to use post it notes the less valuable the format becomes and so in in some ways my answer to this question should be the do not do thing you want to find the thing that no one else is doing you want to find the purple cow you want to go and create the ad format that is the most novel not to be a fast follower to the things that are already working if you find yourself as we are a creative shop that tries to replicate the performance of other people just know that your yield on that will always be subordinate to them is that they created the format that generated the novel approach that maximize the yield and you are you are downstream from that so I just I don't I don't like to think about creative through that lens marketers ruin everything yeah exactly that's the basic thesis ask two questions what's your current thesis on influencer marketing and what's your advice for a founder with limited budget on how they should start this the two greatest influences on purchase decisions for all time will be a recommendation from somebody you trust and price that will forever be true in every modality when we use the term influencer we have made this word mean a lot of things I have a drawing video that I do if you check it out on youtube where I break this down into how I would approach the idea of influencer as a business there are people for whom I want their credibility what I want is the fact that they have trust with an audience that I care to reach and I want to proxy their trust with their audience for me and those are people are really really important I think about that like if I this is where doctors become really good influencers as an example in a space right they don't have audience right sometimes I'm using an influencer for an access to distribution the audience I'm trying to get take my doctor and put them in front of a large scale audience and so I'm using influencer for access to audience and sometimes I want their content this is where the words creator and influencer were sort of get mapped together where the thing I actually want from this person is the media I actually want this video so I can go put it in the ad account and I can make a bunch of money your job is to gather all of those different types of resources right and so to think about okay how do I get both trust and authority distribution and assets and influencers represent a spectrum of possibility across all of them the question is what do you need what do you have and what do they represent opportunity or potential to but your customer cares about what somebody says about your product and you should figure out who it is and make sure that they're talking about your business yeah and they could definitely be all three I mean and it's right that's best case scenario and it could go way past that too I mean you could leverage that to go raise money just put their name on the deck put their name on the pdp page that's so I I talk about this a lot where like there's a time so I let's you go back to icon because I had a rant about this the other day which is like at different points you're using different things to solve different problems so when I'm trying to raise money my positioning as a business is all about upside yeah this is going to be an infinity billion dollar business and so when you build the deck to go show the investors you don't show the service business right yeah you show the infinity moon shot right and so then you go to the next phase and you're like oh well now I have to generate a revenue and I'm selling to a brand what is a brand care about right I don't know what your take is and I did not see your tweet but I want to say something yeah because I want to see if it's what you're thinking because this is what I was thinking because I followed this guy on Twitter he was very very loud about Peter Teal investing that's right in the beginning what is that appeal to yeah right so it's that's that he was leveraging that social proofing to a raise more money and be give credibility to this actually works right that's not for the seven figure dollar e-commerce owner they don't give a shit right so the question is all the time who are you selling to and therefore who influences them and how do I co-op that voice co-op this probably a nasty word but how do I bring that voice alongside mine to build trust with my customer base and then sometimes it goes bad and now I have to substitute that a different way right so all the time you're trying to proxy trust through people for your business and apply it to it as best you can but whether that's more cares brownlee for rich or you know a doctor for your skincare brand or whatever it might be influence matters it always love that last question we talked about off camera before you mentioned you had watched the cane episode great episode for people yeah that i'm not seeing a cane cowboy what is your overall thesis on just like the creator economy and the creator business because Taylor for people listening he has a great great content podcast he's on whiteboards it's great i've gone down your rabbit hole well before this episode as well it's amazing stuff what's your thesis on just how to create a let's just call it media empire and yeah how do you see it what are the pluses what are the minuses i thought he did an awesome job of explaining that the first thing you need to decide is what business model you're in and therefore how that content informs that monetization strategy so for us as a service business we sell contracts that are worth a quarter million dollars a million dollars large-scale value capture to a small subset of customers my goal is not view count right and even for my advertisers what they're trading on with me is authority to a small subset of audiences right and so it's high levels of trust that they're trading on that i can charge a really high cpm if you look at my audience eyes you know it's not massive for my podcast for my youtube channel for my twitter acts account but the cpm i can charge that subset of people is much much higher than the cpm that you're going to get on youtube with a million views by a lot right and so we can build that business and then what i do with the way we think about our media portion of our business is that if i can offset my marketing cost so when i can drive my functional customer acquisition cost negative so inside a ctc we have a negative cac we make money off of marketing and so you my business runs at 30 plus percent operating margin at meaningful scale because i can drive a negative cac because that marketing line on for me in four quarter accounting is actually pot i make money because i have a media business that drives awareness to my customers that i get paid to create content and the fly will just continues the more podcast i create the more videos i make the more media dollars come in the more i get to reach my customers the more they buy my services and that fly we all informs the my monetization strategy but it's all about selling services it's not about trying to make money off the media right it's about what you do make money off the media that's the bifurcated that you have a fairly flat op-x in relation to the media and then you're making a substantial amount of money on sponsorships so we scale the op-x on the media relative to the ability to drive revenue off of it right so the more that we can grow the media business the more we can invest the more people we can make the more content we can create all those things the more customers i reach the more services i sell but for us we are very clear for ourselves that we are in the services business that is what our job is we run an agency we are selling services to e-commerce brands the media is a mechanism to generate large scale awareness and monetization and a negative cac for the sake of that business so it just depends like what are you trying to do and what i'll say is like if i was in a media exclusive business my content would be very different because i would need to generate way more eyeballs than i do i would have to generalize and dumb down the content and get rid of all my acronyms right i'd have to like really think about how i reached a much bigger audience if i was purely trying to build a cpm based advertising business it's not the business I mean i sell services yeah but people out there listening you should definitely watch the calaway episode and the fact that you have a very narrow i cp it's like if you are obsessed with e-commerce and the relationship between marketing and finance i would imagine that you love this episode and you would love all of his stuff i would say you would have a what i'm learning now especially in the last couple months i think that this media that top part of the pyramid that i always talk about the sponsors i think that there's more money and then you think it's crazy well it is i think the category this is where choosing your content category really matters because the those brands they will pay a massive cpm if your audience is niche and right for their customer because again why are they willing to pay that because they monetize it it's such a massive level right they make so much money off the customer like think about the font you brought a fintech some of the best sponsors that we have are mercury bank and the large scale banking providers where their average customer value is massive yeah so they can afford those cpm's i cac hi l tv and price discrimination that's it the bigger the fish the more money they pay you hit one whale that's it and they join last four questions that i ask everybody amazing time man favorite book or podcast and why the book that i give it sits in my background on my zoom call is a book called the carrot seed it's like book for kids but i think it's the ultimate entrepreneur stories it's 10 pages and the story goes like this a little boy planted a carrot seed everybody around him told him it would never come up every day he watered the seed pulled up the weeds around the carrots while everyone told him it would never come up and then one day the carrot came up just like little boy always knew it would and i think that's the story of entrepreneurship is you show up every day you water the ground pull up the weeds everyone's gonna tell you it's not gonna work you're gonna have a bunch of naysayers show up water the ground pull up the weeds never stop believing in one day the carrot comes up just like you always knew it would and that's the story like i read it and i just feel this like i identified with the little boy so much it's just like just show up i've been doing i've been in the same business for 12 years 12 years there were a bunch of days you told her the story either i wanted to quit still every day there's every other day i feel like we're for sure gonna die but you just show up you do the work you water the ground you pull up the weeds and it'll come up i'm gonna get that book from a nieces and nephews guys i'm gonna go hello get it the carrot seed love it entrepreneur or brand that you want to get flowers to and why tailor take your time on this baby oh yeah take your time i'll give you two because i know you have a shit ton of clients and you have been in the space for a long time yeah that's a great question so we're connected through bg Brian garifal is the CEO of school candy he's the best business person i've ever been around and what i care what bg understands is that his life is a 20 long journey of building surplus value into the community that he cares about where he gives more than he takes and he did it for 20 years and he's now the CEO of school candy he's gonna go on to be the CEO of lots of companies with the course of his career but scott galloway i'm a big fan of his content he talks a lot about this idea that masculinity is attached to the idea of surplus value is that every relationship you're in whether it's with your wife with your kids with your employees with the school that you're at whatever it is you give more than you take and he's embodied that to me more than anybody i've ever been around and so i think and i what i've watched him do at school candy which was a company that was really cool and consumer electronics fell apart and that he has rebuilt into a place that's incredible i'm constantly inspired by him and this is another example us sitting here is a byproduct of him making that connection in a way that he didn't have to do he went out of his way because he cared about us both of us probably and said hey mid there might be mutual benefit here that's just woven into who he is in a way that is deeply deeply impactful to me for people out there that i did an episode bg it's probably the most underrated episode of the 25 years he's underrated it's the definition of bg yeah he is such a weapon and i say it all the time i think the most interesting interesting thing about him is he is a he has covered so much ground like he was a marketing guy oh for now he's like an opson finance that path from from head of e-commerce to cmo to cio is very rare like you don't usually see cmo to cio and so he i think is aspirational for any marketer out there as a good career path to fall yeah i think it's going to be so interesting when he's like 57 and he's like cio of like a disney or something and he is the guy that has been in enough roles both you know ecom cmo cio and then enough companies to know how to win there and he's so like systematic in nature and like the other thing is like you know what really freaking matters is integrity always a great dude so just doing what you say you're going to do being honest and caring about the humans Roger i'll tell you i've run an agency for 12 years okay we've had lots of wins and lots of customers two times in the history of my company has a customer shown up at our office to thank the team for the work after like five one year in our office he showed up with a cooler of ice cream sandwiches stood up on a table said i just want to thank all of you this is when he's the cmo big blue so thank you all for the work you're going to do you guys are an important part of what we did gave them all ice cream sandwiches and walked out it's happened two times in 12 years the amount of people that actually look around them and can express gratitude and appreciation for the place that they're in and can always make the people around them feel like man you are an important part of why i am successful is like an unbelievably rare skill bg par two 20 27 20 27 28 great guy last question how big can common thread collective be we could be a public company within three years worth a billion dollars enough said we'll leave it there where can they find you on the internet common thread code commas where you can come and chat with us if you're a seven or eight figure e-commerce brand would love to chat and then i'm taylor holiday on twitter and deems are open love the jam with people on x mom man guys i'm gonna do tons of links and resources below hope you enjoy the episode i do else what's up guys if you guys got this far in the episode i would assume that you enjoyed it if you got any value it would mean the world if you hit the subscribe button give it a like post a comment tell a friend we could keep going bigger bigger guess bigger locations more value see you in the next episode