August 28, 2025 • 40 mins
This episode of Scalability School explores how DTC founders can leverage debt as a strategic growth tool rather than a dangerous crutch. Zach, Brad, and Andrew walk through the math every media buyer should understand before scaling (EPCs, conversion rates, AOVs, margins), highlight why inventory-backed debt can be the smartest use of capital, and break down how to model financials in a way that impresses lenders. The episode blends media buying fundamentals (math, margins, bundling strategy) with financial strategy (when and how to use debt, what lenders look for, and how to avoid financial “fuckups”).
Key Takeaways:
-
The math (CPCs, CVRs, AOVs) you need to know before spending a single dollar on Facebook ads
-
Understanding the hidden costs that will erode your true margins and must be worked into your modeling
-
The importance of negotiating everything to improve margins before raising prices?
-
How building out this team offshore can be one of the highest-ROI scaling moves for your brand
-
The one thing that convinced Hollow’s founders that debt was a better option than raising equity
-
How to you convince lenders to fund a young, $1M brand (and the data they really want to see).
-
The big reason robust financial models essential even for early-stage brands
-
Are you using debt this way? 3 of the most dangerous ways brands misuse debt
-
The #1 rule when working with lenders
This episode is sponsored by Wayflyer, a smarter way to use debt for growth. To learn more about them and how they may be able to help your brand grow head here to learn more.
To connect with Andrew Foxwell send an email Andrew@foxwelldigital.com
To connect with Brad Ploch send him a DM.
To connect with Zach Stuck send him a DM
Learn More about the Foxwell Founders Community head here to learn more.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(01:00:00):
You always have to start with the math,
which is I'm going to try
and sell a product online
and I'm going to use Facebook ads. I can
assume two things. When
EPCs will likely be around $2,
potentially could be up to five as of
recently. Depending on what category
you're in, if you're
in health and wellness, you might see
some pretty high spikes. And then you
have a rough ballpark
of conversion rate, 3% to 6%, 7%. And you
use those two metrics to
(01:00:20):
determine what your cost
per acquisition is going to be. So in
this example I just used, the
reason that founders ads work a
lot of the time is because it's the
founder talking about the problem that
they solve for themselves.
And it's a meaningful thing. And it's
really hard to make a
founder ad that works. If you just
went on Alibaba and knock something off,
I'm sure there's plenty of
dropshippers that are printing
money and they don't actually do anything
novel or they're stealing
somebody else's IP, probably mine.
(01:00:43):
Taking on debt, it's just like anything
else, right? When you
do in your business that
if it's a short term fix and there's not
a plan of how that will be avoided,
then it's a band-aid and that's going to
be something that you're
going to lean on and it's
not a good thing. It's like you need a
plan for how you aren't
going to necessarily need
this short term stuff. Between the two of
us and then hiring these
kind of fractional CFOs,
(01:01:03):
we were able to build something that was
definitely more robust than what a brand
at only a million dollars in revenue had
done. And I kind of knew
that I needed to impress them
to the point that I knew exactly what I
was doing, which is why I
was asking for more money,
maybe than a brand should at only a
million dollars in revenue.
And now let's take a listen to the
(01:01:25):
Scalability School podcast.
[MUSIC]
Lots of good stuff that we've got going
today. Talking about using
debt to grow on this episode.
Super stoked to talk about it as always.
Very excited. Zach and
Brad, what's going on, guys?
I think I say live in the dream like
every other episode.
I was going to say, just keep that going.
Just keep that going.
Just keep that going. Let's just throw that in
GPT and get a couple of...
Let's put beefs at the front of the show
(01:01:46):
and talk about Zach's tweet
about the playbook that
everybody needs to follow.
Yeah.
Who are we flaming today? Do you want me
to read it back to you?
Or do you just want to rip?
We can just start by me just seeing
things on Twitter that are
ex-Homestike clients that are
just being obnoxious. And then that
usually prompts me to
fire off a, I don't know,
10,000 character to eat at like seven in
(01:02:09):
the morning the second I wake up,
which is what I did today. So yeah, I was
just talking about
the fundamentals of D2C,
which I feel like are fairly
straightforward. A lot of
people talk about a lot,
but that's what I
tweeted about this morning.
You know, it's really interesting. I
don't remember where...
I feel like this idea of founder ads
keeps coming up and
people keep talking about it.
And literally your first point in this
tweet is like, "Here's the playbook.
(01:02:29):
Sell a product that solves a problem."
And the reason that founders ads work a
lot of the time is
because it's the founder talking
about the problem that they solve for
themselves. And it's a meaningful thing.
And it's really hard to make a founder ad
that works if you just
went on Alibaba and knocked
something off. Those work. Don't get me
wrong. I'm sure there's plenty of
dropshippers that are
printing money and they don't actually do
anything novel or they're
(01:02:50):
stealing somebody else's IP,
probably mine. I just... Yeah, I don't
know. I think a lot about
that because it's been a
recurring theme I've seen.
I just think that the easiest win that
you have in this whole D2C
ecom thing is just solving a
problem and just making it abundantly
clear what problem you
solve and how you've done that.
If you're just trying to sell whatever.
(01:03:12):
If we were just a hollow socks, just
selling cotton socks,
what problem do I solve? I don't know.
They look cool. It's
just really hard to win
in 2025 when you're just trying to be
another one of a thousand
brands selling the same old
shit. So that to me is the fundamental
start there. Boom. Solve
a problem. Make sure the
product solves a problem. Make sure you
can talk about solving the problem.
(01:03:33):
And then I go through a bunch of stuff,
which I mean, if we want to
riff through this, we can.
But this is basically me just coming off
of seeing people
complaining and basically saying
that they deserve things to happen and
performance to happen. And
when nothing changes about their
business and they don't listen to smart
people who are giving them
advice, that's been proven
time and time again. Well, why don't we?
Why don't we have
highlights of the of this? Like,
(01:03:53):
why don't we hit some of the pieces that
people have engaged on that
you feel like are the parts
that people really wanted to get into? I
mean, obviously, too many
people don't know the numbers
that obviously goes into today's episode
talking about using debt to
grow totally starting with
the math of just like how you're going to
like sell your product.
You always have to start with
the math, which is I'm going to try and
sell a product online and
I'm going to use Facebook ads.
(01:04:14):
I can assume two things when the PCs will
likely be around $2
potentially could be up to five.
As of like recently, depending on what
category you're in, if you're like in
health and wellness,
you might see some pretty high spikes.
And then you have a rough ballpark of
conversion rate, 3 to 6, 7%. And you use
those two metrics to
determine what your cost per
acquisition is going to be. So in this
(01:04:34):
example, I just used your
goal should be to have 100 plus
AOV if you're selling a one-time purchase
product, unless you're selling
subscription or a product
that has a high return customer rate. And
on that, you can probably
expect a $50 new customer CPA
in 2025 with a $2 CPC and a 4% conversion
rate. So that's how we back
into all that math. And I'm
like, you just have to start by
understanding that because there's so
(01:04:56):
many brands that start or
they're a few million dollars in revenue
and they're like, why
can't I scale? Well, your math
just doesn't work. You're selling a
product or even selling a bundle of
products and it's like
60 bucks. But to get a CPA that would
work for a $60 AOV is just too hard to
do. So starting with
that math and understanding what's
realistic there, I think is really
important. The landed
(01:05:17):
margin of 60 plus percent is so
important. People do not think about that
also. It's like, okay,
I think about my cost of delivery, maybe
you're ordering product
or not even cost delivery.
You're thinking about your COGS, cost of
goods sold. And you're
thinking about, oh, this is what
my product is going to cost from China or
I can order more and get my
COGS down. What you're not
taking into consideration is your
(01:05:37):
pick-pack fees, your shipping to the
customer. If you're shipping
out of the country, if you're trying to
scale to maybe Canada or somewhere else,
EU, Australia, what is that impact going
to be? I think the other
thing too is people will do
things on their website, turn products
into bundles, but then
not think about what their
fulfillment team, their 3PL is going to
now charge them to do a
bundle because now there's
more products included. All of that math
(01:05:59):
is important to
understand before you're like,
hey, I have this thing that I think can
work. I think just starting
there as a baseline of 60%
margin left over after that product or
products have landed at
your customer's door should be
your target. And if you're not there, you
probably need to
charge more for your product
or bundle more things to create a bigger
piece of margin for you.
(01:06:19):
The other stuff here, I think that's
really interesting is
keeping your product selection
simple. We've seen this time and time
again. Anyone that's run
an agency has worked with a
brand that has way too many SKUs and then
they just fall off because
they just get buried with
so many dead SKUs. Don't know what to do
with. And that's where all
their cash ends up sitting
is just in dead inventory.
That was one. What else here?
Can I ask about the
margin thing really quick?
(01:06:39):
Maybe not ask, but just dig into it a
little bit deeper. But
thinking about when we had a whole
offer or a whole offer episode, which I
think is valuable to dig
back into. But quick TLDR.
If you aren't at that point, what are you
doing first? Are you
saying, "Okay, great. I have 50%
margin. Am I going and am I yelling at my
(01:07:00):
supplier and trying to make
it cheaper? Am I asking what
volume I need to get to to get to those
points?" Okay, so that's one
thing you could do. You can
raise your prices, but are you going and
looking at the market? Or
are you just saying, "No,
this is what I need in order for this to
work. I just have to figure
out how to position it in a
way that people value it at this price?"
And then three, on the
point of shipping, I suppose you
could always just charge shipping and
(01:07:21):
test that out. But what's
your order of operations working
through that? Yeah, it's initially
starting with just all of the moving
pieces that goes into the
cost before I even talk about changing
the price. Changing the price comes last.
So it's like negotiating with
manufacturers, negotiating with 3PLs,
negotiating with your
FedEx or whoever you're shipping with. We
just moved from US Postal Service,
which was traditionally the lowest cost
(01:07:41):
of shipping for one of
our brands, to Amazon.
Like, I don't know. This is a new thing
that they wrote down. It's
like Amazon Prime shipping.
They'll come to our warehouse, pick up
big Amazon truck and pick up
every order that used to be US
Postal Service. We're saving $1.50 per
order delivered at the
customer store. That over volume
can add up to be real dollars. So yeah,
all of those things can be
negotiated. That's the thing
(01:08:01):
I keep sending this meme of this random
guy that just says,
"Everything can be negotiated."
Just keep putting it in Slack. It's in
the partnerships channel
and whitelisting channel.
It's in the ops channel. It's in the
product channel. It's in
everywhere. It's in any agency
that we hire, I'm like, "Go negotiate."
So I think if you're not doing those
things, you got to be a
little bit more of a hard ass and go do
(01:08:22):
that first. Then it's
pricing. Then it's seeing what's
possible. Yeah, that's where I started.
That's where I think you
have to start. But there's so
many little things that people are like,
"My 3PL charges $3 per
order." That's what they say.
Go ask them to do $2.50. They're right.
Everything is negotiable. Say,
"Hey, this is where my volume
is at now. If we can get it down to
(01:08:43):
$2.50, I think I can get my volume to
here," which means more
dollars in your pocket at the end of the
day. But if I'm stuck by
losing $0.50 per order,
that might just be the little bit of
nugget that I need to go
push a little bit harder.
Yeah, I think it's an important point
because you're not trying to be a shit
partner by asking for better-- Totally.
You're not trying to be a dick. You're
just trying to get better
margins so you can run a
business that will support their
business. Right. And again, this will go
(01:09:03):
into the episode, but
building models of what could be if you
get better margin across
all of your partners is
what's going to help at the end of the
day. So that was a big one.
And then the offshore talent
for building creative teams out, I think
that we've learned a ton.
Easy Street and our portfolio now
of like, we're just going to hire
creative strategists,
designers, editors. This took me
(01:09:23):
years of Brad just absolutely hammering
me and saying, "You're an
idiot. Why aren't you doing
this?" But finally, it's set in this
year. But now we have a team of creative
team members on each
brand between creative strategists,
editors, designers. And that
total cost is, we're talking
maybe $25,000 a month to have seven
amazing, incredible
(01:09:44):
people. Might not even be 25. So
that was a big one that a lot of people
ask questions about was
like, "How do you go about
doing that? How do you think about it?"
And my answer, which is
one that I normally hate,
is go look at big creative agencies and
go poach their people off
of LinkedIn. Don't do that to
Homestead. But if they're a big creative
agency that has 500
employees and a bunch of people in
(01:10:05):
the Philippines or Central America,
that's a good starting point.
All super good tips. I think
we're just talking about negotiating with
influencers. So yeah, I
agree a lot can be negotiated. I
think that's a huge point. And I think
knowing the numbers is a
good one. And per usual, you put
something out on X, dude, the crowd
absolutely loves it. Sitting
at 10.5K views, not even 12
(01:10:27):
hours in. Yeah, it's pretty soft. I put
out a lot of stuff,
absolute fricking crickets from the
Foxwell machine. Nobody cares at all. But
I did get a text yesterday
from a guy I hadn't spoken
to in a long time who was driving down
the 405 in LA listening to
our podcast in his cyber truck.
(01:10:48):
So shout out to you listener, you know
who you are. Thank you.
Our numbers continue to climb
into the high tens. So super stoked to
have all of you checking
things out and listening. And we
can definitely beef on some stuff as the
show goes on as well. But
let's get into talking about
the debt and how you used debt or how you
use debt to grow, right using
(01:11:09):
debt and inventory financing
as a tool for smart, scalable growth. So
I'm just going to start off by asking why
did Hollow choose to use debt when you
guys started this? Yeah, so the story of
Hollow is basically we
kicked off the brand actually six years
ago, it started as a
slightly different name, it's called
(01:11:30):
Follow Hollow. They don't talk about this
part very frequently, but
I'll kind of tell the whole
story now. Started as rank of Follow
Hollow, my co-founder Brian is an
inventor through and through
he's an entrepreneur, but an inventor at
the end of the day, and he
had this idea to do these socks.
And so it kicked off as an actual
Kickstarter. I think we did a few hundred
thousand in revenue,
I can't remember exactly, but there were
like 150, I can't remember
(01:11:51):
what it was. But we started with
that. And that kind of is really where
there was a little bit of
product market fit originally.
And then he was in charge of running the
brand for the first year.
And then a few years into
Homestead, I made the decision to say,
"Hey, I actually really
want to put a ton of attention
on the brand side versus just being on
the agency side." That's
when I took over and that's
when I rebranded it to just Hollow. I
(01:12:11):
kind of got rid of some of
the coloring of the product and
just really simplified it down to just
being a few skus and just
black and gray. And in that first
year, between Brian and I think we put in
like 50 grand to buy
inventory. And on that 50 grand of
the inventory, that was about $300,000 of
products, retail price. And that first,
this was like a three
(01:12:32):
month period of time. We went to market.
I've talked about this a
million times. We tried a
bunch of different cohorts. We found this
hunting angle and these
static ads and it ripped. And we
sold all $300,000 worth of product in
like 90 days. We zeroed 100K in revenue
in the first 30 days.
From there, it was kind of up to us to
say, "Okay, we did
$300,000 of revenue in a short
period of time. We sold everything. We
were profitable during
(01:12:53):
that period of time." And
it was like, "Okay, we put in 50 and we
got back out like 110
or something like that,
or 120." We're like, "Okay, how many
socks can we buy for 120 grand
now?" And that was really it.
That was all that we really knew what to
do. It was just like,
"Okay, put all the money back in,
let's go buy some more socks." And that
120 grand got us enough
socks to push into that next year
(01:13:14):
and push through summer. And it was about
like mid summer where
we decided to say, "Okay,
this is working. We think this can work,
but we need to put in a
little more cash." And that's
when I think we injected a little bit
more cash into the
business, maybe like 50 to 100 grand
between Brian and I. So now we're at
like, I don't know, $1
million invested in. And with that
$1 million, we're able to buy enough
socks to do just over $1
(01:13:34):
million worth of revenue at this
point. And that's exactly what we did. We
did $1 million in that
first year. It was like $1.1
million. We sold every sock that we
basically had. I think we
were down to literally like
10 units left. And that was true product
market fit. We're like,
"Okay, we did $1 million in our
first official 12 months with this
business, even though technically there
were previous years."
(01:13:54):
But with Holo, the brand, and we want to
push up. And now it's like,
"Okay, we need more money.
We need to figure something out." So debt
was really the only
option that we had unless we
wanted to go the equity route. And Brian
and I were both pretty
convinced that this thing
could be much bigger than where it was
with just a million dollar
business. We didn't really know
how to value it at that point. We were
(01:14:14):
like, "Is it worth a
million dollars? Is it worth $10
million? How do we value this? We weren't
sure." So debt was our
only option. And that's what
started this whole trajectory of like,
"We want to grow this
business. We need to buy more socks.
We can go equity. We can go debt." And we
wanted to stick with keeping owning it.
And so we went debt.
And that's what teed up all of this. Was
it purely based on like, "I literally
(01:14:34):
just need to have more
in stock because I can only buy X amount
right now. That's going to
last me two months at our
current growth rate. So I could do that
and I could do this way
slower. Or I could get debt
because I know my whatever the financial
term is cash on cash return,
something like that. Return
on invested capital or another who will
be paying off faster." Yeah, I mean, I
think the honest part
of this is like I was running Homestead
(01:14:55):
still during this time. And
we were working with brands
like Hexclad. And Hexclad grew, I think
that same year that we did our first
million Hexclad grew
by like 50 million, 100 million. I don't
remember. It was the first
year they grew by 50 and then the
next one they grew by 100. So I'm like
pushing buttons and ad
accounts working with our team,
seeing brands grow 100 million and we
grew a million. I'm like,
"Okay, I know I can do this
(01:15:16):
shit. I think I have the playbook figured
out. We have a little
bit of track record."
But I wasn't sitting on a ton of cash.
Brian wasn't sitting on a
ton of cash that he wanted
to invest in yet because it was still a
little risky because it
was still new. And so we were
like, "Okay, yeah, the return on capital
wasn't enough for us to push
up as fast as what I really
wanted to grow at." That was really it
was we wanted to grow
faster than what we could even
(01:15:36):
do on our own. And the two options that
we had was go bring in
investors or go get debt.
So you're sitting down, you're looking at
this, you're thinking about
this. One thing that I think
you always do really well is talk to a
bunch of different people in a lot of
different places and
get their opinion. When did this shift
and what was it that shifted
in you that you saw debt as an
(01:15:57):
investment tool? Because clearly there
was this delineation that happened.
Totally. Yeah, I think it was the fact
that we could put a dollar into the
Facebook machine and
see like three to four dollars out pretty
automatically without
having a ton of other
resources. Because you had confidence in
your marketing abilities.
Correct. Yeah. And I think that the debt
as a tool became just it
(01:16:17):
was new knowledge to me,
to be honest. It's not like I had all
this pre-existing
knowledge. I was running an agency
before that. It's basically just cashflow
business. I had no
knowledge of the debt side of it.
But what I did know is that we had
clients like Hexglad that
would get debt. They were working
with JP Morgan at the time and they were
using debt to grow their
business because they had a
proven model that basically backed out to
say if I put a dollar in,
(01:16:38):
I can get three to four or
five dollars out and we're just going to
do that over and over again
and we can pay this money back
to this bank. So I think it was
confidence that came from a lot of the
work that we're doing for
our clients at the time and me having
confidence that we actually cracked a
funnel for this brand
that I think could be much bigger. So you
go through this, you have
this mindset shift. You're
talking to them. Okay, now we're going to
(01:17:01):
do debt. You're talking to potential
lenders and whatever.
How do you convince lenders that you... I
mean, you're a young business.
Million in revenue, right? How do you
convince them that
you're worth lending to?
This episode is brought to you by Brad's
company, Work Marketing.
If you need a D2C marketing
(01:17:22):
agency, let me tell you Homestead is
great, but work marketing is also
fantastic. And let me tell
you, you aren't going to find friendlier
people out there in the
e-commerce space. So we decided
to do these little ads for each other's
companies. So hopefully you find it
interesting, but seriously,
great team at work marketing, very smart.
(01:17:43):
Brad and Jordan are
incredibly dialed in. I just gave
them a lead. I already made this brand
that I gave them. I don't even know,
double revenue that they
had in the previous month or something.
So it's very exciting to be
connected with Brad. And if
you need a great agency, there's really
no one better. Zach, if
you want an agency that cares
(01:18:03):
about your business much more than they
care about their own
website, I just tried to load
workmarketing.com and it was broken. So
they're definitely going to
give more of a shit about your
business than their own. So I highly
recommend Brad and the team over at work.
They've been incredible.
We've referred a lot of business over to
them as well. Really, really
good as far as like cracking
funnels and figuring out like rapid
growth for brands. So
I recommend these guys.
(01:18:25):
How do you convince lenders that you... I
mean, you're a young business.
Million in revenue, right? So how do you
convince them that
you're worth lending to?
Totally. So this is where I do have to
say, I have to give the
disclaimer of I had Homestead.
So we had this track record of helping
(01:18:46):
brands grow for years
already at this point. We took a
couple of clients from like, we had one
case study. We took a brand from 50K a
month to 2 million a
month in like 90 days. And so we had some
of these and then some of
the bigger ones like Hexclaude
at this point was a client. And so when
I'm talking to these like
lenders, I'm also sharing
those stories. I'm saying, "Hey, we're
pushing buttons for these other
(01:19:06):
businesses and we've
seen what it takes to grow and grow
profitably." So I have that experience,
but now we're going to
obviously try to apply it to this one.
But yeah, I mean, in the
start of like in 2023, we had
emissions to keep pushing, hitting the
gas. I'm like, "I want to
grow by like 10X." Because that
was just a ridiculous, anxious goal. I'm
like, "We did a million, why
can't we do 10?" And that's
(01:19:27):
when we started to have to have these
conversations. So I mean, I talked to
everybody under the sun at
that point. If you go scroll back to
2023, you'll see me tweeting about like,
"Who should I talk to?
What about Settle? What about WayFlyer?
What about Clearco who no
longer exists? What about normal
banks? What are lender credits? Can I use
them? How does all this
stuff work?" I mean, I really
didn't have the background outside of
knowing that I needed to prove to these
(01:19:48):
lenders that I had a
model that was proven and that they could
trust me with that model.
Sure. Yeah. I mean, really,
it started by me just having a ton of
these conversations. And
the one lender that really
stood out to us was WayFlyer. They were
the one that kind of came to
us. And I met with a lot of
their leadership team. I have to give a
shout out to like Patty
Cohen over at WayFlyer. I mean,
the dude basically came to us and said,
(01:20:10):
"This is what you need to
give me to prove to me that we
should fund you." And a lot of that was
just modeling. It was
modeling cashflow. It was modeling
profits. It was modeling revenue. It was
modeling the whole financial ecosystem.
By doing that exercise, that also helped
you be more intimately
involved in understanding
your own financing with the business or
like revenue growth
and everything. Right?
A hundred percent.
(01:20:30):
Because we had to prove to them, like,
"This is why we're worth
it. This is what we can do."
Totally. And as an agency founder, owner,
I was good at sales
always, but it's different when
you're convincing someone to give you
hundreds of thousands of
dollars or millions of dollars
at some point, money to hopefully pay
them back and pay them
back the interest. Right?
So I needed to know how those financial
(01:20:51):
tools worked. Right? So
learning how to read a P&L
properly, learning what a balance sheet
was different than a
P&L, learning how to build
like a 13-week cashflow statement in a
year cashflow statement,
and just knowing how all of
those moving pieces worked was the most
important part of it. Even
though we were a million dollar
business, we had models built that were
as robust as a 30, 40, 50
(01:21:12):
million dollar business because
they were so in the detail and I was so
in the day-to-day of knowing
dollars and dollars out that
was happening. That's what was absolutely
required of them to
be so confident to say,
"Sure, we'll give you some
money and see what happens."
When you're a business at like the
million dollar size, like you're talking
about how robust these
models are. Like, how did you get... How
did you even get to that
point? Like, how did you make
(01:21:33):
them that strong? Because at a million
dollars, like, volatility
is an insane thing. Your ad
account could get shut down tomorrow and
your model is completely
broken, especially at that
size. So, like, how did you even get to
the point of knowing what you
needed from a financial models
perspective? I ended up hiring a couple
fractional CFOs in the early days and
spending like a decent
amount of money on that. And then we
(01:21:53):
brought in an early young
like finance employee, Jacob,
who has been a godsend to us and just an
absolute killer. But he came
in in the fall of 23, right,
as we were really trying to get, you
know, put these models
together. And he helped me do a lot
of this stuff, to be honest. He had a
background in banking. He kind of
understood a lot of these
things. I understood the D2C model, but
(01:22:14):
he understood like
the financial model. So,
between the two of us and then hiring
these kind of fractional CFOs, we were
able to build something
that was definitely more robust than what
a brand at only a million dollars in
revenue had done. And
I kind of knew that I needed to impress
them to the point that I
knew exactly what I was doing,
which is why I was asking for more money
maybe than a brand should
at only a million dollars in
revenue. So you get this set up, you're,
(01:22:35):
you know, getting... You got
the funding, you see how it
allows you to scale. You're utilizing it
properly. I mean, obviously one of the
things with Wayflyer
is they get you the funding quickly,
which is a huge value drop, right? Speed
is a big part of it.
We'll talk about that. But so now it's
like 20... You're
forecasting for 2024 and you go to them
and you say, "Totally." We're going to
(01:22:56):
grow. How do you... Yeah.
There's a story here about
yarn buying. Yeah. Totally. So, I mean,
the biggest thing about
2023 for us was we forecasted
$9 million in revenue and we hit it on
the head. Like hit it on the
head. We did $9 million and
$10,000 in revenue that year. Month over
month was pretty consistent.
(01:23:17):
We built out this model of how
much we could grow and how much we could
spend and how we would use
that money. I think that's
the most important thing is making sure
that when you're working
with getting debt is knowing
exactly what you're going to use those
dollars for. And for us, we
didn't need it for ad spend.
We didn't need it for marketing dollars
or team. At this point, there
was only three people on the
team. We were very, very small. It was me
and two other people. And
(01:23:37):
so, yeah. I mean, it was mostly
about saying, "Hey, we're going to go do
$9 million when we went and did it." And
that alone, I think,
is building that trust with a lender is
everything. If you do what
you say you're going to do,
they're going to be more willing to give
you more money in the
future. One of my mentors,
his name is Rick. He's always told me
this statement. He's like,
"Banks are... You're going
to want money from banks to a certain
(01:23:59):
degree where then the
thing switches where banks are
going to want to give you money when you
don't even need it." So I
didn't say that perfectly,
but basically the phrase is like, "You
need to try to convince
them to a point until your
business is big enough and strong enough
and profitable and
you've proven the amount. And
then they're going to want to give you
too much money that you don't even need
to utilize anymore."
In the early days, it's the complete
opposite. You got to pitch
(01:24:19):
them and you got to prove to it.
You got to build that trust. So yeah, I
think the big thing for us is the way
that Holo works is we
buy our raw materials ourselves. We
import our raw materials of this alpaki
yarn directly from Peru
in the cash immersion cycle on that
dollar spent is horrible.
We buy our yarn six months
before we can sell it. So we need money
for raw materials before
(01:24:40):
we can even manufacture the
product, before we can even turn it into
socks, before we can get it at a
warehouse, before we
can even list it for sale. And that was
the main use of this money.
And we were very clear about
how much money we needed to buy in yarns.
We could make socks in the US
and so we could sell them in
Q4. And so we proved that out. I mean,
that was our 2023 goal.
We did it exactly. And then
(01:25:00):
going back to them in 24 and saying,
"Hey, we want to do 20 million now. We
want a little over double."
We knew what we needed to show them. We
know we needed to show
them these robust models about
demand forecasting for yarn buying.
Here's exactly how we're going to buy it.
Here's the terms that
we've negotiated and gotten better with
our yarn buying. Here's how we've
negotiated terms with
our manufacturer and how we've got a
little bit more cashflow there and how
(01:25:21):
that's going to help
us be able to pay you back faster. Hey,
we've gotten better
credit card lending options and
better payment terms with them, which
means we're going to have more free
cashflow to pay you back
faster. All these things were basically
the story to tell the lender
how we were going to pay them
back and how they could trust us even
more with more money. So
yeah, Wayflier basically came to
the table as one of the better options.
(01:25:42):
And because they, like
you said, are fast and when
you're in a high growth business, you
need money yesterday, we're
able to get deals done quickly
and get funded. So yeah, that's really
what I have to say there.
That got us to that next stage.
Yeah, we had our, and again, one more
person, I just have to give
a shout out to, is like Brian
McDermott. He became our new account
manager and him and Jacob
(01:26:03):
were just battling it out,
making sure that all of our stuff was
fully robust and so that they felt
comfortable funding us. But
they came through again. And without that
debt, we definitely
wouldn't have been able to as a
bootstrap business go from one to nine to
20. I think a lot of
times with Wayflier or with
anybody else, it's like you guys, there's
a lesson in the fact
(01:26:23):
the way that you utilized
and got creative with them and structured
repayment terms and
caps. And can you talk
about that a little bit in terms of just,
you said, this is what we
can do or were they more like,
we basically- We looked at your numbers,
we know this is what you can do.
Yeah, I mean, it was a little bit of
(01:26:43):
both. I mean, they're
obviously always going to
optimize for what's best for them. But
because we started to
really understand our financials
so well and our cash flow so well, we
came back to them and said,
"Hey, this is what you proposed
to us, but we're going to come back to
you and we want flat fees.
This is how we're going to pay
you back as flat numbers and we're going
to structure it in a
monthly payback. It's going
to get you the same number that you want
at the end of the day and
it's going to work for both of
(01:27:04):
us." And they were definitely flexible
there and willing to work
with us. And I think that that's
truly why we ended up working with them
and continue to work with
them. Some of these other
lenders are very, very strict. They're
like, "Here's the payback schedule.
Here's how it works.
You pay us back every week. It's a
percentage of revenue we
rip straight out of Shopify."
Everyone is a little bit different, but
they were always willing to
(01:27:25):
try to find the sweet spot
because we had proven now to them, now
almost at two years of
our relationship with them,
what worked best for us and
how we could pay them back.
So how did you... You kind of are
aligning talking about,
"Okay, here's the inventory and
the revenue cycles that we have." How is
it a lump sum they're
giving you? Is it money that's
(01:27:45):
coming in regularly? How are you working
all of this together with
them? Or is it an agreement
for a long period of time? Or how does
that work? Yeah. I mean, the technical
term I think that we
had with WaveFlyer that year was like a
letter of intent, which is
tied to a line of credit,
essentially, set up. So we had so many
funds accessible planned
(01:28:06):
for the year. And based on
our models, we knew when we needed to
draw down on that. And they
were going to keep those funds
ready for us. So it's like we took it all
in one shot. It's definitely
strategic. So for their own
sanity, it's not like we were taking a
bunch of money down all at
once and hopefully we'd pay
them back. It was all based around the
cash flow needs of the
business. So I do think that that
(01:28:27):
was beneficial too. I think that also
made us more cautious with
the dollars as well. It made
us more strategic with how we were going
to spend every dollar
that we borrowed for them.
And yeah, I think that that's how we
ended up working it out
was it would come in tranches
as needed, but a predetermined amount
that they would be able to fund us over
the course of a year.
I mean, the biggest takeaways, I guess,
of working with that and working with
(01:28:47):
WaveFlyer specifically
is just starting with just transparency
and being very honest of
where you're at with your brand.
I think over-promising, over-committing,
making shit up is never
going to get you the long-term
results that you want. And you're also
going to end up having this
financial stress, which if
there's ever been any stress on my life,
(01:29:07):
financial stress is the
worst stress. Product problems,
things get lost at sea, whatever.
Facebook ads go to shit during a week.
Those are all okay. Financial
stress is the biggest stressor. So I
think just starting with transparency,
finding them everything
that they ask for, I think is the most
straightforward piece is just not being
afraid to be like, "Hey,
here's my business. Here's how I'm
thinking about it." Making sure that
(01:29:29):
their underwriters have
truly everything that they need to feel
like they can fund you.
And then just letting them
know your goals and how you're going to
back into it. I think the biggest two
things that they look
for is what is your ability to pay back
funds and how are you going
to pay them back truly based on
a financial model? And two, why do you
need it? I think a lot of
(01:29:50):
people think, "I need money to
grow." Well, what is that going to be
used for? Is that going to be
used for 3PL fees or is that
going to be used for buying actual
product that's going to let you grow the
business and increase
returning customer rate, which is more
profitable for you than just
continuing to sell the same
thing? So I think being strategic about
what you're using that
money for and having that very
clearly laid out for them is huge. But
yeah, I think that's the
first one. The models is
(01:30:11):
everything else. Having financial models
that actually make sense
that tell the story of how
you're going to use those dollars from a
12 month P&L to an
inventory forecast, to inventory
forecast that backs into your purchasing
scheduling. Giving them
truly your full roadmap of,
"Here's how I run the business. Here's
how I make financial
decisions. Here's how I'm going to do
(01:30:32):
it." Plus then a 12 month cash flow
forecast. To them, then they have
everything in their hands
to make a decision and say, "Should I
fund them or not?" Because
you're giving them all of your
decision making 12 months in advance. And
again, you can be wrong.
There's degrees where they'll
work with you and try to find
flexibility. But the more thought through
you can do this and the more
you can actually use previous data or
previous history to try and
(01:30:52):
show them how you've made those
decisions, that's everything. And then
the last bit, and this is more
a tip for funding with really
anybody, but specifically what we found
with Wayflyers, get that
funny locked in that next round
before you need it. When things are good,
get them the statements,
get them the documents,
get them everything and tell them where
you're headed and where
you want to go. Obviously,
there can be downturns. There can be hard
(01:31:12):
moments in a business. So
having all that prepared so that
you can have the money ready to rock when
you need it is just super
important. And that's where
people on my team have done a really good
job and I have to give
them kudos to because they've
played proactively versus
reactively when we need debt.
I think all that stuff is super helpful.
I appreciate you
going through the tips and
everything. I feel like let's be
(01:31:34):
transparent. Debt is one
of the main reasons why
it's a main driver of
bankruptcy with the ETC brands, right?
It's expensive, can be expensive. Who
shouldn't take it? Where
does it not make sense? I mean,
I think you've laid it out to the point
of if somebody's really
(01:31:56):
clear with what they're
trying to do, they're really clear with
how they're going to use it,
that makes sense. But I think
maybe it's just the opposite. There's not
a clear vision. They don't
have good financials. They
don't have a proven track record. Where
are situations where
you've seen debt be taken on
and you know that's not the right call? I
think it's the inverse of what I said,
(01:32:16):
so we can just start with that. So when
you don't have those
things, I wouldn't be comfortable
doing it. If I didn't feel like I had all
the tools ready to
present to them, I wouldn't have
even felt comfortable having money. What
would I do with it? If I
don't know what I'm exactly
going to do with it, when I'm going to
spend it, where it's going to
go. Knowing that I owe it back
to somebody, just inherently that is a
pressure that you hold, or
(01:32:38):
at least I do internally.
Having that whole plan is the most
important piece. So
if you don't have that,
probably shouldn't take on debt. The
other area that we've seen brands,
like sadly through some clients through
Homestead or just other
brands just in the ecosystem,
even some of the brands that we bought in
the portfolio historically, I mean,
they took on debt to run Facebook ads,
things like that. It's
like, you're taking on money,
you're going to pay 10% to 20% APR
(01:33:01):
interest on it. And you're going to try
and turn a dollar into
more dollars, but you're not doing really
the math on how much return
you need to make off of the
dollar you're investing into something
that isn't guaranteed. The guaranteed
thing about us is if we
buy yarn to make stocks, we're getting
yarn. I know I'm getting
yarn and I'm getting what I'm
paying for. If I go use it for something
(01:33:22):
that has a higher risk
potential, I don't know that I'm
going to get back what I've planned. So
to me, that's where I think
using debt for things like
inventory is a great use. It's an asset,
at least it can be turned
into something. Using it for
inventory that are risky, so maybe new
products I would be
cautious to use it for.
Taking big swings like, "Hey, our
(01:33:43):
business isn't working really well. Maybe
if we go take this big
swing with this influencer or partner,
new product launch," probably wouldn't
use debt to go do that.
I would definitely try to self fund that
because it could go to
zero. So I think it's using it
for things that don't have the risk in
itself is usually when debt is more
appropriately useful.
It is a risk through and through. That is
the point of it. True.
(01:34:04):
Yeah. And that's why they
charge interest. That's part of the
business is they take on the
risk of you and you take on the
risk of having to pay someone back. But
that's how I think about
it. Yeah. It's very cool. It's
clearly a relationship. It's something
that has allowed you to
scale. I know there's plenty of
other examples of mutual friends too that
Wayflyers helps scale. So utilizing this
tool, utilizing debt
(01:34:24):
as a tool and a strategic lever. So it's
cool to go through it. I
think we should transition into
a new segment of the show called
Financial Thought Cups,
where we talk about things that
we've seen that are messed up in
finances. One of my personal
favorites is when people get a
credit line from Meta, I'm always like,
"You're NGMI. You're not
(01:34:46):
going to." It just makes me
nervous. I don't know how you guys feel.
But when I see that
happening and them not being able to
pay via the credit card, that makes me a
little nervous. One of the
first times I was ever exposed
to a Meta credit line was when I got
access to an ad account that
owed Meta a million dollars.
And they didn't pay it. And they still
haven't paid it. And there was no
(01:35:06):
intention to pay it.
And this was years ago. And I was like,
"Oh, I didn't know that
they would let you do that."
But they thought you should do that. And
that was crazy. So yeah,
that's my contribution to the
Financial Thought Cups. I've seen... I
mean, we've had clients take Shopify
capital loans and I don't
have a strong opinion. I don't know
enough about this. So this episode was
super interesting for
(01:35:26):
me to just sit back and listen because I
don't know and I don't know
here. And I know that maybe
Shopify capital interest rates are not
the best for people. But if you need
money with intent and
you have plans behind it, it can still
work, I'm sure. But generally
the reasons they took it was,
okay, they're probably under some kind of
pressure. They feel like they need it.
Understandable in the moment. But to your
(01:35:47):
point, it was to pay down a
credit card for a marketing
spend that was never going to pay itself
back or was going to take
years to pay itself back.
Taking on debt. It's just like anything
else when you do in your business that
if it's a short term fix and there's not
a plan of how that will be avoided,
then it's a band aid and that's going to
be something that
you're going to lean on and
(01:36:08):
it's not a good thing. It's like you need
a plan for how you aren't
going to necessarily need
this short term stuff. If you're talking
about what Zach's
talking about with Wayflyer,
it's a long term relationship. They know
his business intimately.
He's repaying. It's a good
thing. They're unlocking growth that he
wouldn't have, which is awesome. But
there's all these...
But when you have a Shopify capital loan,
(01:36:31):
it's like that I think is
okay, but you have to have
a plan with these small little things of
how you're going to
actually not be dependent on it
and how you're going to build the
business to the point of
real growth. Because otherwise,
that kind of stuff, if you're not smart
about it, obviously the
interest can kill you. It can
double and triple down on you. And then
next thing you know, you're taking out
credit lines for metal.
(01:36:52):
It's bad. And the reality is too, all
this goes back to what you guys have
talked about on this
podcast a bunch, which is you have to
know your numbers. You have
to know the cost of landed
product, the pick pack fees. It has to
all be part of this
equation because we've all seen it
running agencies. People walk into a
corner and then they don't know and
(01:37:14):
they're looking only
at Meta ROAS and you're like, "There's
more to the story here."
And next thing you know,
they're not making anything because they
haven't known the full
picture of the business.
Yeah. Only contribution to financial
fuckups is recently heard
of a brand that has gotten
pretty big that was postponing state
sales tax and just got hit
(01:37:35):
with a ringer there. So make sure
you're looking into that because that can
be one that can definitely
punch you in the ass if you're
not paying your taxes. It turns out not
paying your taxes is rough.
That's going to be a really
difficult future for you and the state
and the federal government will find you.
Yes. But yeah, no, I mean, there's a
(01:37:58):
million stories, right? I
mean, there's a lot of these
and it's sad. It's a bummer that a lot of
these brands go through
this to the point where they
run into too much debt and the debt
payments alone monthly, they just can't
cover. And so things go
under. But I think the best bet there is
just having the plan, really
understanding your numbers,
having the plan, knowing what you're
going to use the money for and following
through with what you
(01:38:18):
say you're going to do. And if you can do
those things and it might
require working your ass off
and putting a bunch of hours in to make
sure things go to plan, if you can do
that and that can compound
your over a year, it can really give you
the extra fuel that you need
to really push growth. And we
at Hala would not be hitting the numbers
that we're hitting and the
volume that we're hitting as
quickly as we were being a bootstrap
company and not taking any
equity rounds without debt. So
(01:38:40):
it's been incredibly useful for us. Well,
Zach, thanks for sharing
the story. And if people have
questions about it, they can email me,
Andrew at FoxwellDigital.com.
I'm happy to get you over to
Zach and get connected or hit the guys up
on Twitter and we can
get you connected with the
WayFlyer team. That's not a problem.
Before we go, it's important to say that
WayFlyer is sponsoring
this episode, of course. However, we only
(01:39:01):
work with the sponsors
that we truly trust and know.
And so that's why we've chosen to work
with them on this because we
think it's an important thing
to unlock and we have bills to pay. So
back off. So thank you for
listening and we appreciate all
of you and we'll look forward to the next
episode. Thanks everyone.
The only way that we grow this podcast is
(01:39:27):
by you sharing it with
your friends. Honestly,
reviews don't really mean anything too
much anymore. They're really meaningful,
but they don't do a lot for the growth of
the podcast. And so
sharing YouTube links,
sharing Spotify links, sharing Apple,
whatever we call it under the
podcast app now, anything you
can share, the better we're going to be.
(01:39:47):
Guys, anything else
you want to say on this?
Yeah, please go check us out on YouTube,
rack up those views for us.
We'd love to see it. And then
subscribe, make sure to subscribe on
YouTube as well. And I
relentlessly refresh the YouTube
comments because it dictates my mental
health for the day. So please say
something nice about all of
us. Thank you everyone. Thanks for
listening. Honestly.
You always have to start with the math,
which is I'm going to try
and sell a product online
and I'm going to use Facebook ads. I can
assume two things. When
EPCs will likely be around $2,
potentially could be up to five as of
recently. Depending on what category
you're in, if you're
in health and wellness, you might see
some pretty high spikes. And then you
have a rough ballpark
of conversion rate, 3% to 6%, 7%. And you
use those two metrics to
(01:00:20):
determine what your cost
per acquisition is going to be. So in
this example I just used, the
reason that founders ads work a
lot of the time is because it's the
founder talking about the problem that
they solve for themselves.
And it's a meaningful thing. And it's
really hard to make a
founder ad that works. If you just
went on Alibaba and knock something off,
I'm sure there's plenty of
dropshippers that are printing
money and they don't actually do anything
novel or they're stealing
somebody else's IP, probably mine.
(01:00:43):
Taking on debt, it's just like anything
else, right? When you
do in your business that
if it's a short term fix and there's not
a plan of how that will be avoided,
then it's a band-aid and that's going to
be something that you're
going to lean on and it's
not a good thing. It's like you need a
plan for how you aren't
going to necessarily need
this short term stuff. Between the two of
us and then hiring these
kind of fractional CFOs,
(01:01:03):
we were able to build something that was
definitely more robust than what a brand
at only a million dollars in revenue had
done. And I kind of knew
that I needed to impress them
to the point that I knew exactly what I
was doing, which is why I
was asking for more money,
maybe than a brand should at only a
million dollars in revenue.
And now let's take a listen to the
(01:01:25):
Scalability School podcast.
[MUSIC]
Lots of good stuff that we've got going
today. Talking about using
debt to grow on this episode.
Super stoked to talk about it as always.
Very excited. Zach and
Brad, what's going on, guys?
I think I say live in the dream like
every other episode.
I was going to say, just keep that going.
Just keep that going.
Just keep that going. Let's just throw that in
GPT and get a couple of...
Let's put beefs at the front of the show
(01:01:46):
and talk about Zach's tweet
about the playbook that
everybody needs to follow.
Yeah.
Who are we flaming today? Do you want me
to read it back to you?
Or do you just want to rip?
We can just start by me just seeing
things on Twitter that are
ex-Homestike clients that are
just being obnoxious. And then that
usually prompts me to
fire off a, I don't know,
10,000 character to eat at like seven in
(01:02:09):
the morning the second I wake up,
which is what I did today. So yeah, I was
just talking about
the fundamentals of D2C,
which I feel like are fairly
straightforward. A lot of
people talk about a lot,
but that's what I
tweeted about this morning.
You know, it's really interesting. I
don't remember where...
I feel like this idea of founder ads
keeps coming up and
people keep talking about it.
And literally your first point in this
tweet is like, "Here's the playbook.
(01:02:29):
Sell a product that solves a problem."
And the reason that founders ads work a
lot of the time is
because it's the founder talking
about the problem that they solve for
themselves. And it's a meaningful thing.
And it's really hard to make a founder ad
that works if you just
went on Alibaba and knocked
something off. Those work. Don't get me
wrong. I'm sure there's plenty of
dropshippers that are
printing money and they don't actually do
anything novel or they're
(01:02:50):
stealing somebody else's IP,
probably mine. I just... Yeah, I don't
know. I think a lot about
that because it's been a
recurring theme I've seen.
I just think that the easiest win that
you have in this whole D2C
ecom thing is just solving a
problem and just making it abundantly
clear what problem you
solve and how you've done that.
If you're just trying to sell whatever.
(01:03:12):
If we were just a hollow socks, just
selling cotton socks,
what problem do I solve? I don't know.
They look cool. It's
just really hard to win
in 2025 when you're just trying to be
another one of a thousand
brands selling the same old
shit. So that to me is the fundamental
start there. Boom. Solve
a problem. Make sure the
product solves a problem. Make sure you
can talk about solving the problem.
(01:03:33):
And then I go through a bunch of stuff,
which I mean, if we want to
riff through this, we can.
But this is basically me just coming off
of seeing people
complaining and basically saying
that they deserve things to happen and
performance to happen. And
when nothing changes about their
business and they don't listen to smart
people who are giving them
advice, that's been proven
time and time again. Well, why don't we?
Why don't we have
highlights of the of this? Like,
(01:03:53):
why don't we hit some of the pieces that
people have engaged on that
you feel like are the parts
that people really wanted to get into? I
mean, obviously, too many
people don't know the numbers
that obviously goes into today's episode
talking about using debt to
grow totally starting with
the math of just like how you're going to
like sell your product.
You always have to start with
the math, which is I'm going to try and
sell a product online and
I'm going to use Facebook ads.
(01:04:14):
I can assume two things when the PCs will
likely be around $2
potentially could be up to five.
As of like recently, depending on what
category you're in, if you're like in
health and wellness,
you might see some pretty high spikes.
And then you have a rough ballpark of
conversion rate, 3 to 6, 7%. And you use
those two metrics to
determine what your cost per
acquisition is going to be. So in this
(01:04:34):
example, I just used your
goal should be to have 100 plus
AOV if you're selling a one-time purchase
product, unless you're selling
subscription or a product
that has a high return customer rate. And
on that, you can probably
expect a $50 new customer CPA
in 2025 with a $2 CPC and a 4% conversion
rate. So that's how we back
into all that math. And I'm
like, you just have to start by
understanding that because there's so
(01:04:56):
many brands that start or
they're a few million dollars in revenue
and they're like, why
can't I scale? Well, your math
just doesn't work. You're selling a
product or even selling a bundle of
products and it's like
60 bucks. But to get a CPA that would
work for a $60 AOV is just too hard to
do. So starting with
that math and understanding what's
realistic there, I think is really
important. The landed
(01:05:17):
margin of 60 plus percent is so
important. People do not think about that
also. It's like, okay,
I think about my cost of delivery, maybe
you're ordering product
or not even cost delivery.
You're thinking about your COGS, cost of
goods sold. And you're
thinking about, oh, this is what
my product is going to cost from China or
I can order more and get my
COGS down. What you're not
taking into consideration is your
(01:05:37):
pick-pack fees, your shipping to the
customer. If you're shipping
out of the country, if you're trying to
scale to maybe Canada or somewhere else,
EU, Australia, what is that impact going
to be? I think the other
thing too is people will do
things on their website, turn products
into bundles, but then
not think about what their
fulfillment team, their 3PL is going to
now charge them to do a
bundle because now there's
more products included. All of that math
(01:05:59):
is important to
understand before you're like,
hey, I have this thing that I think can
work. I think just starting
there as a baseline of 60%
margin left over after that product or
products have landed at
your customer's door should be
your target. And if you're not there, you
probably need to
charge more for your product
or bundle more things to create a bigger
piece of margin for you.
(01:06:19):
The other stuff here, I think that's
really interesting is
keeping your product selection
simple. We've seen this time and time
again. Anyone that's run
an agency has worked with a
brand that has way too many SKUs and then
they just fall off because
they just get buried with
so many dead SKUs. Don't know what to do
with. And that's where all
their cash ends up sitting
is just in dead inventory.
That was one. What else here?
Can I ask about the
margin thing really quick?
(01:06:39):
Maybe not ask, but just dig into it a
little bit deeper. But
thinking about when we had a whole
offer or a whole offer episode, which I
think is valuable to dig
back into. But quick TLDR.
If you aren't at that point, what are you
doing first? Are you
saying, "Okay, great. I have 50%
margin. Am I going and am I yelling at my
(01:07:00):
supplier and trying to make
it cheaper? Am I asking what
volume I need to get to to get to those
points?" Okay, so that's one
thing you could do. You can
raise your prices, but are you going and
looking at the market? Or
are you just saying, "No,
this is what I need in order for this to
work. I just have to figure
out how to position it in a
way that people value it at this price?"
And then three, on the
point of shipping, I suppose you
could always just charge shipping and
(01:07:21):
test that out. But what's
your order of operations working
through that? Yeah, it's initially
starting with just all of the moving
pieces that goes into the
cost before I even talk about changing
the price. Changing the price comes last.
So it's like negotiating with
manufacturers, negotiating with 3PLs,
negotiating with your
FedEx or whoever you're shipping with. We
just moved from US Postal Service,
which was traditionally the lowest cost
(01:07:41):
of shipping for one of
our brands, to Amazon.
Like, I don't know. This is a new thing
that they wrote down. It's
like Amazon Prime shipping.
They'll come to our warehouse, pick up
big Amazon truck and pick up
every order that used to be US
Postal Service. We're saving $1.50 per
order delivered at the
customer store. That over volume
can add up to be real dollars. So yeah,
all of those things can be
negotiated. That's the thing
(01:08:01):
I keep sending this meme of this random
guy that just says,
"Everything can be negotiated."
Just keep putting it in Slack. It's in
the partnerships channel
and whitelisting channel.
It's in the ops channel. It's in the
product channel. It's in
everywhere. It's in any agency
that we hire, I'm like, "Go negotiate."
So I think if you're not doing those
things, you got to be a
little bit more of a hard ass and go do
(01:08:22):
that first. Then it's
pricing. Then it's seeing what's
possible. Yeah, that's where I started.
That's where I think you
have to start. But there's so
many little things that people are like,
"My 3PL charges $3 per
order." That's what they say.
Go ask them to do $2.50. They're right.
Everything is negotiable. Say,
"Hey, this is where my volume
is at now. If we can get it down to
(01:08:43):
$2.50, I think I can get my volume to
here," which means more
dollars in your pocket at the end of the
day. But if I'm stuck by
losing $0.50 per order,
that might just be the little bit of
nugget that I need to go
push a little bit harder.
Yeah, I think it's an important point
because you're not trying to be a shit
partner by asking for better-- Totally.
You're not trying to be a dick. You're
just trying to get better
margins so you can run a
business that will support their
business. Right. And again, this will go
(01:09:03):
into the episode, but
building models of what could be if you
get better margin across
all of your partners is
what's going to help at the end of the
day. So that was a big one.
And then the offshore talent
for building creative teams out, I think
that we've learned a ton.
Easy Street and our portfolio now
of like, we're just going to hire
creative strategists,
designers, editors. This took me
(01:09:23):
years of Brad just absolutely hammering
me and saying, "You're an
idiot. Why aren't you doing
this?" But finally, it's set in this
year. But now we have a team of creative
team members on each
brand between creative strategists,
editors, designers. And that
total cost is, we're talking
maybe $25,000 a month to have seven
amazing, incredible
(01:09:44):
people. Might not even be 25. So
that was a big one that a lot of people
ask questions about was
like, "How do you go about
doing that? How do you think about it?"
And my answer, which is
one that I normally hate,
is go look at big creative agencies and
go poach their people off
of LinkedIn. Don't do that to
Homestead. But if they're a big creative
agency that has 500
employees and a bunch of people in
(01:10:05):
the Philippines or Central America,
that's a good starting point.
All super good tips. I think
we're just talking about negotiating with
influencers. So yeah, I
agree a lot can be negotiated. I
think that's a huge point. And I think
knowing the numbers is a
good one. And per usual, you put
something out on X, dude, the crowd
absolutely loves it. Sitting
at 10.5K views, not even 12
(01:10:27):
hours in. Yeah, it's pretty soft. I put
out a lot of stuff,
absolute fricking crickets from the
Foxwell machine. Nobody cares at all. But
I did get a text yesterday
from a guy I hadn't spoken
to in a long time who was driving down
the 405 in LA listening to
our podcast in his cyber truck.
(01:10:48):
So shout out to you listener, you know
who you are. Thank you.
Our numbers continue to climb
into the high tens. So super stoked to
have all of you checking
things out and listening. And we
can definitely beef on some stuff as the
show goes on as well. But
let's get into talking about
the debt and how you used debt or how you
use debt to grow, right using
(01:11:09):
debt and inventory financing
as a tool for smart, scalable growth. So
I'm just going to start off by asking why
did Hollow choose to use debt when you
guys started this? Yeah, so the story of
Hollow is basically we
kicked off the brand actually six years
ago, it started as a
slightly different name, it's called
(01:11:30):
Follow Hollow. They don't talk about this
part very frequently, but
I'll kind of tell the whole
story now. Started as rank of Follow
Hollow, my co-founder Brian is an
inventor through and through
he's an entrepreneur, but an inventor at
the end of the day, and he
had this idea to do these socks.
And so it kicked off as an actual
Kickstarter. I think we did a few hundred
thousand in revenue,
I can't remember exactly, but there were
like 150, I can't remember
(01:11:51):
what it was. But we started with
that. And that kind of is really where
there was a little bit of
product market fit originally.
And then he was in charge of running the
brand for the first year.
And then a few years into
Homestead, I made the decision to say,
"Hey, I actually really
want to put a ton of attention
on the brand side versus just being on
the agency side." That's
when I took over and that's
when I rebranded it to just Hollow. I
(01:12:11):
kind of got rid of some of
the coloring of the product and
just really simplified it down to just
being a few skus and just
black and gray. And in that first
year, between Brian and I think we put in
like 50 grand to buy
inventory. And on that 50 grand of
the inventory, that was about $300,000 of
products, retail price. And that first,
this was like a three
(01:12:32):
month period of time. We went to market.
I've talked about this a
million times. We tried a
bunch of different cohorts. We found this
hunting angle and these
static ads and it ripped. And we
sold all $300,000 worth of product in
like 90 days. We zeroed 100K in revenue
in the first 30 days.
From there, it was kind of up to us to
say, "Okay, we did
$300,000 of revenue in a short
period of time. We sold everything. We
were profitable during
(01:12:53):
that period of time." And
it was like, "Okay, we put in 50 and we
got back out like 110
or something like that,
or 120." We're like, "Okay, how many
socks can we buy for 120 grand
now?" And that was really it.
That was all that we really knew what to
do. It was just like,
"Okay, put all the money back in,
let's go buy some more socks." And that
120 grand got us enough
socks to push into that next year
(01:13:14):
and push through summer. And it was about
like mid summer where
we decided to say, "Okay,
this is working. We think this can work,
but we need to put in a
little more cash." And that's
when I think we injected a little bit
more cash into the
business, maybe like 50 to 100 grand
between Brian and I. So now we're at
like, I don't know, $1
million invested in. And with that
$1 million, we're able to buy enough
socks to do just over $1
(01:13:34):
million worth of revenue at this
point. And that's exactly what we did. We
did $1 million in that
first year. It was like $1.1
million. We sold every sock that we
basically had. I think we
were down to literally like
10 units left. And that was true product
market fit. We're like,
"Okay, we did $1 million in our
first official 12 months with this
business, even though technically there
were previous years."
(01:13:54):
But with Holo, the brand, and we want to
push up. And now it's like,
"Okay, we need more money.
We need to figure something out." So debt
was really the only
option that we had unless we
wanted to go the equity route. And Brian
and I were both pretty
convinced that this thing
could be much bigger than where it was
with just a million dollar
business. We didn't really know
how to value it at that point. We were
(01:14:14):
like, "Is it worth a
million dollars? Is it worth $10
million? How do we value this? We weren't
sure." So debt was our
only option. And that's what
started this whole trajectory of like,
"We want to grow this
business. We need to buy more socks.
We can go equity. We can go debt." And we
wanted to stick with keeping owning it.
And so we went debt.
And that's what teed up all of this. Was
it purely based on like, "I literally
(01:14:34):
just need to have more
in stock because I can only buy X amount
right now. That's going to
last me two months at our
current growth rate. So I could do that
and I could do this way
slower. Or I could get debt
because I know my whatever the financial
term is cash on cash return,
something like that. Return
on invested capital or another who will
be paying off faster." Yeah, I mean, I
think the honest part
of this is like I was running Homestead
(01:14:55):
still during this time. And
we were working with brands
like Hexclad. And Hexclad grew, I think
that same year that we did our first
million Hexclad grew
by like 50 million, 100 million. I don't
remember. It was the first
year they grew by 50 and then the
next one they grew by 100. So I'm like
pushing buttons and ad
accounts working with our team,
seeing brands grow 100 million and we
grew a million. I'm like,
"Okay, I know I can do this
(01:15:16):
shit. I think I have the playbook figured
out. We have a little
bit of track record."
But I wasn't sitting on a ton of cash.
Brian wasn't sitting on a
ton of cash that he wanted
to invest in yet because it was still a
little risky because it
was still new. And so we were
like, "Okay, yeah, the return on capital
wasn't enough for us to push
up as fast as what I really
wanted to grow at." That was really it
was we wanted to grow
faster than what we could even
(01:15:36):
do on our own. And the two options that
we had was go bring in
investors or go get debt.
So you're sitting down, you're looking at
this, you're thinking about
this. One thing that I think
you always do really well is talk to a
bunch of different people in a lot of
different places and
get their opinion. When did this shift
and what was it that shifted
in you that you saw debt as an
(01:15:57):
investment tool? Because clearly there
was this delineation that happened.
Totally. Yeah, I think it was the fact
that we could put a dollar into the
Facebook machine and
see like three to four dollars out pretty
automatically without
having a ton of other
resources. Because you had confidence in
your marketing abilities.
Correct. Yeah. And I think that the debt
as a tool became just it
(01:16:17):
was new knowledge to me,
to be honest. It's not like I had all
this pre-existing
knowledge. I was running an agency
before that. It's basically just cashflow
business. I had no
knowledge of the debt side of it.
But what I did know is that we had
clients like Hexglad that
would get debt. They were working
with JP Morgan at the time and they were
using debt to grow their
business because they had a
proven model that basically backed out to
say if I put a dollar in,
(01:16:38):
I can get three to four or
five dollars out and we're just going to
do that over and over again
and we can pay this money back
to this bank. So I think it was
confidence that came from a lot of the
work that we're doing for
our clients at the time and me having
confidence that we actually cracked a
funnel for this brand
that I think could be much bigger. So you
go through this, you have
this mindset shift. You're
talking to them. Okay, now we're going to
(01:17:01):
do debt. You're talking to potential
lenders and whatever.
How do you convince lenders that you... I
mean, you're a young business.
Million in revenue, right? How do you
convince them that
you're worth lending to?
This episode is brought to you by Brad's
company, Work Marketing.
If you need a D2C marketing
(01:17:22):
agency, let me tell you Homestead is
great, but work marketing is also
fantastic. And let me tell
you, you aren't going to find friendlier
people out there in the
e-commerce space. So we decided
to do these little ads for each other's
companies. So hopefully you find it
interesting, but seriously,
great team at work marketing, very smart.
(01:17:43):
Brad and Jordan are
incredibly dialed in. I just gave
them a lead. I already made this brand
that I gave them. I don't even know,
double revenue that they
had in the previous month or something.
So it's very exciting to be
connected with Brad. And if
you need a great agency, there's really
no one better. Zach, if
you want an agency that cares
(01:18:03):
about your business much more than they
care about their own
website, I just tried to load
workmarketing.com and it was broken. So
they're definitely going to
give more of a shit about your
business than their own. So I highly
recommend Brad and the team over at work.
They've been incredible.
We've referred a lot of business over to
them as well. Really, really
good as far as like cracking
funnels and figuring out like rapid
growth for brands. So
I recommend these guys.
(01:18:25):
How do you convince lenders that you... I
mean, you're a young business.
Million in revenue, right? So how do you
convince them that
you're worth lending to?
Totally. So this is where I do have to
say, I have to give the
disclaimer of I had Homestead.
So we had this track record of helping
(01:18:46):
brands grow for years
already at this point. We took a
couple of clients from like, we had one
case study. We took a brand from 50K a
month to 2 million a
month in like 90 days. And so we had some
of these and then some of
the bigger ones like Hexclaude
at this point was a client. And so when
I'm talking to these like
lenders, I'm also sharing
those stories. I'm saying, "Hey, we're
pushing buttons for these other
(01:19:06):
businesses and we've
seen what it takes to grow and grow
profitably." So I have that experience,
but now we're going to
obviously try to apply it to this one.
But yeah, I mean, in the
start of like in 2023, we had
emissions to keep pushing, hitting the
gas. I'm like, "I want to
grow by like 10X." Because that
was just a ridiculous, anxious goal. I'm
like, "We did a million, why
can't we do 10?" And that's
(01:19:27):
when we started to have to have these
conversations. So I mean, I talked to
everybody under the sun at
that point. If you go scroll back to
2023, you'll see me tweeting about like,
"Who should I talk to?
What about Settle? What about WayFlyer?
What about Clearco who no
longer exists? What about normal
banks? What are lender credits? Can I use
them? How does all this
stuff work?" I mean, I really
didn't have the background outside of
knowing that I needed to prove to these
(01:19:48):
lenders that I had a
model that was proven and that they could
trust me with that model.
Sure. Yeah. I mean, really,
it started by me just having a ton of
these conversations. And
the one lender that really
stood out to us was WayFlyer. They were
the one that kind of came to
us. And I met with a lot of
their leadership team. I have to give a
shout out to like Patty
Cohen over at WayFlyer. I mean,
the dude basically came to us and said,
(01:20:10):
"This is what you need to
give me to prove to me that we
should fund you." And a lot of that was
just modeling. It was
modeling cashflow. It was modeling
profits. It was modeling revenue. It was
modeling the whole financial ecosystem.
By doing that exercise, that also helped
you be more intimately
involved in understanding
your own financing with the business or
like revenue growth
and everything. Right?
A hundred percent.
(01:20:30):
Because we had to prove to them, like,
"This is why we're worth
it. This is what we can do."
Totally. And as an agency founder, owner,
I was good at sales
always, but it's different when
you're convincing someone to give you
hundreds of thousands of
dollars or millions of dollars
at some point, money to hopefully pay
them back and pay them
back the interest. Right?
So I needed to know how those financial
(01:20:51):
tools worked. Right? So
learning how to read a P&L
properly, learning what a balance sheet
was different than a
P&L, learning how to build
like a 13-week cashflow statement in a
year cashflow statement,
and just knowing how all of
those moving pieces worked was the most
important part of it. Even
though we were a million dollar
business, we had models built that were
as robust as a 30, 40, 50
(01:21:12):
million dollar business because
they were so in the detail and I was so
in the day-to-day of knowing
dollars and dollars out that
was happening. That's what was absolutely
required of them to
be so confident to say,
"Sure, we'll give you some
money and see what happens."
When you're a business at like the
million dollar size, like you're talking
about how robust these
models are. Like, how did you get... How
did you even get to that
point? Like, how did you make
(01:21:33):
them that strong? Because at a million
dollars, like, volatility
is an insane thing. Your ad
account could get shut down tomorrow and
your model is completely
broken, especially at that
size. So, like, how did you even get to
the point of knowing what you
needed from a financial models
perspective? I ended up hiring a couple
fractional CFOs in the early days and
spending like a decent
amount of money on that. And then we
(01:21:53):
brought in an early young
like finance employee, Jacob,
who has been a godsend to us and just an
absolute killer. But he came
in in the fall of 23, right,
as we were really trying to get, you
know, put these models
together. And he helped me do a lot
of this stuff, to be honest. He had a
background in banking. He kind of
understood a lot of these
things. I understood the D2C model, but
(01:22:14):
he understood like
the financial model. So,
between the two of us and then hiring
these kind of fractional CFOs, we were
able to build something
that was definitely more robust than what
a brand at only a million dollars in
revenue had done. And
I kind of knew that I needed to impress
them to the point that I
knew exactly what I was doing,
which is why I was asking for more money
maybe than a brand should
at only a million dollars in
revenue. So you get this set up, you're,
(01:22:35):
you know, getting... You got
the funding, you see how it
allows you to scale. You're utilizing it
properly. I mean, obviously one of the
things with Wayflyer
is they get you the funding quickly,
which is a huge value drop, right? Speed
is a big part of it.
We'll talk about that. But so now it's
like 20... You're
forecasting for 2024 and you go to them
and you say, "Totally." We're going to
(01:22:56):
grow. How do you... Yeah.
There's a story here about
yarn buying. Yeah. Totally. So, I mean,
the biggest thing about
2023 for us was we forecasted
$9 million in revenue and we hit it on
the head. Like hit it on the
head. We did $9 million and
$10,000 in revenue that year. Month over
month was pretty consistent.
(01:23:17):
We built out this model of how
much we could grow and how much we could
spend and how we would use
that money. I think that's
the most important thing is making sure
that when you're working
with getting debt is knowing
exactly what you're going to use those
dollars for. And for us, we
didn't need it for ad spend.
We didn't need it for marketing dollars
or team. At this point, there
was only three people on the
team. We were very, very small. It was me
and two other people. And
(01:23:37):
so, yeah. I mean, it was mostly
about saying, "Hey, we're going to go do
$9 million when we went and did it." And
that alone, I think,
is building that trust with a lender is
everything. If you do what
you say you're going to do,
they're going to be more willing to give
you more money in the
future. One of my mentors,
his name is Rick. He's always told me
this statement. He's like,
"Banks are... You're going
to want money from banks to a certain
(01:23:59):
degree where then the
thing switches where banks are
going to want to give you money when you
don't even need it." So I
didn't say that perfectly,
but basically the phrase is like, "You
need to try to convince
them to a point until your
business is big enough and strong enough
and profitable and
you've proven the amount. And
then they're going to want to give you
too much money that you don't even need
to utilize anymore."
In the early days, it's the complete
opposite. You got to pitch
(01:24:19):
them and you got to prove to it.
You got to build that trust. So yeah, I
think the big thing for us is the way
that Holo works is we
buy our raw materials ourselves. We
import our raw materials of this alpaki
yarn directly from Peru
in the cash immersion cycle on that
dollar spent is horrible.
We buy our yarn six months
before we can sell it. So we need money
for raw materials before
(01:24:40):
we can even manufacture the
product, before we can even turn it into
socks, before we can get it at a
warehouse, before we
can even list it for sale. And that was
the main use of this money.
And we were very clear about
how much money we needed to buy in yarns.
We could make socks in the US
and so we could sell them in
Q4. And so we proved that out. I mean,
that was our 2023 goal.
We did it exactly. And then
(01:25:00):
going back to them in 24 and saying,
"Hey, we want to do 20 million now. We
want a little over double."
We knew what we needed to show them. We
know we needed to show
them these robust models about
demand forecasting for yarn buying.
Here's exactly how we're going to buy it.
Here's the terms that
we've negotiated and gotten better with
our yarn buying. Here's how we've
negotiated terms with
our manufacturer and how we've got a
little bit more cashflow there and how
(01:25:21):
that's going to help
us be able to pay you back faster. Hey,
we've gotten better
credit card lending options and
better payment terms with them, which
means we're going to have more free
cashflow to pay you back
faster. All these things were basically
the story to tell the lender
how we were going to pay them
back and how they could trust us even
more with more money. So
yeah, Wayflier basically came to
the table as one of the better options.
(01:25:42):
And because they, like
you said, are fast and when
you're in a high growth business, you
need money yesterday, we're
able to get deals done quickly
and get funded. So yeah, that's really
what I have to say there.
That got us to that next stage.
Yeah, we had our, and again, one more
person, I just have to give
a shout out to, is like Brian
McDermott. He became our new account
manager and him and Jacob
(01:26:03):
were just battling it out,
making sure that all of our stuff was
fully robust and so that they felt
comfortable funding us. But
they came through again. And without that
debt, we definitely
wouldn't have been able to as a
bootstrap business go from one to nine to
20. I think a lot of
times with Wayflier or with
anybody else, it's like you guys, there's
a lesson in the fact
(01:26:23):
the way that you utilized
and got creative with them and structured
repayment terms and
caps. And can you talk
about that a little bit in terms of just,
you said, this is what we
can do or were they more like,
we basically- We looked at your numbers,
we know this is what you can do.
Yeah, I mean, it was a little bit of
(01:26:43):
both. I mean, they're
obviously always going to
optimize for what's best for them. But
because we started to
really understand our financials
so well and our cash flow so well, we
came back to them and said,
"Hey, this is what you proposed
to us, but we're going to come back to
you and we want flat fees.
This is how we're going to pay
you back as flat numbers and we're going
to structure it in a
monthly payback. It's going
to get you the same number that you want
at the end of the day and
it's going to work for both of
(01:27:04):
us." And they were definitely flexible
there and willing to work
with us. And I think that that's
truly why we ended up working with them
and continue to work with
them. Some of these other
lenders are very, very strict. They're
like, "Here's the payback schedule.
Here's how it works.
You pay us back every week. It's a
percentage of revenue we
rip straight out of Shopify."
Everyone is a little bit different, but
they were always willing to
(01:27:25):
try to find the sweet spot
because we had proven now to them, now
almost at two years of
our relationship with them,
what worked best for us and
how we could pay them back.
So how did you... You kind of are
aligning talking about,
"Okay, here's the inventory and
the revenue cycles that we have." How is
it a lump sum they're
giving you? Is it money that's
(01:27:45):
coming in regularly? How are you working
all of this together with
them? Or is it an agreement
for a long period of time? Or how does
that work? Yeah. I mean, the technical
term I think that we
had with WaveFlyer that year was like a
letter of intent, which is
tied to a line of credit,
essentially, set up. So we had so many
funds accessible planned
(01:28:06):
for the year. And based on
our models, we knew when we needed to
draw down on that. And they
were going to keep those funds
ready for us. So it's like we took it all
in one shot. It's definitely
strategic. So for their own
sanity, it's not like we were taking a
bunch of money down all at
once and hopefully we'd pay
them back. It was all based around the
cash flow needs of the
business. So I do think that that
(01:28:27):
was beneficial too. I think that also
made us more cautious with
the dollars as well. It made
us more strategic with how we were going
to spend every dollar
that we borrowed for them.
And yeah, I think that that's how we
ended up working it out
was it would come in tranches
as needed, but a predetermined amount
that they would be able to fund us over
the course of a year.
I mean, the biggest takeaways, I guess,
of working with that and working with
(01:28:47):
WaveFlyer specifically
is just starting with just transparency
and being very honest of
where you're at with your brand.
I think over-promising, over-committing,
making shit up is never
going to get you the long-term
results that you want. And you're also
going to end up having this
financial stress, which if
there's ever been any stress on my life,
(01:29:07):
financial stress is the
worst stress. Product problems,
things get lost at sea, whatever.
Facebook ads go to shit during a week.
Those are all okay. Financial
stress is the biggest stressor. So I
think just starting with transparency,
finding them everything
that they ask for, I think is the most
straightforward piece is just not being
afraid to be like, "Hey,
here's my business. Here's how I'm
thinking about it." Making sure that
(01:29:29):
their underwriters have
truly everything that they need to feel
like they can fund you.
And then just letting them
know your goals and how you're going to
back into it. I think the biggest two
things that they look
for is what is your ability to pay back
funds and how are you going
to pay them back truly based on
a financial model? And two, why do you
need it? I think a lot of
(01:29:50):
people think, "I need money to
grow." Well, what is that going to be
used for? Is that going to be
used for 3PL fees or is that
going to be used for buying actual
product that's going to let you grow the
business and increase
returning customer rate, which is more
profitable for you than just
continuing to sell the same
thing? So I think being strategic about
what you're using that
money for and having that very
clearly laid out for them is huge. But
yeah, I think that's the
first one. The models is
(01:30:11):
everything else. Having financial models
that actually make sense
that tell the story of how
you're going to use those dollars from a
12 month P&L to an
inventory forecast, to inventory
forecast that backs into your purchasing
scheduling. Giving them
truly your full roadmap of,
"Here's how I run the business. Here's
how I make financial
decisions. Here's how I'm going to do
(01:30:32):
it." Plus then a 12 month cash flow
forecast. To them, then they have
everything in their hands
to make a decision and say, "Should I
fund them or not?" Because
you're giving them all of your
decision making 12 months in advance. And
again, you can be wrong.
There's degrees where they'll
work with you and try to find
flexibility. But the more thought through
you can do this and the more
you can actually use previous data or
previous history to try and
(01:30:52):
show them how you've made those
decisions, that's everything. And then
the last bit, and this is more
a tip for funding with really
anybody, but specifically what we found
with Wayflyers, get that
funny locked in that next round
before you need it. When things are good,
get them the statements,
get them the documents,
get them everything and tell them where
you're headed and where
you want to go. Obviously,
there can be downturns. There can be hard
(01:31:12):
moments in a business. So
having all that prepared so that
you can have the money ready to rock when
you need it is just super
important. And that's where
people on my team have done a really good
job and I have to give
them kudos to because they've
played proactively versus
reactively when we need debt.
I think all that stuff is super helpful.
I appreciate you
going through the tips and
everything. I feel like let's be
(01:31:34):
transparent. Debt is one
of the main reasons why
it's a main driver of
bankruptcy with the ETC brands, right?
It's expensive, can be expensive. Who
shouldn't take it? Where
does it not make sense? I mean,
I think you've laid it out to the point
of if somebody's really
(01:31:56):
clear with what they're
trying to do, they're really clear with
how they're going to use it,
that makes sense. But I think
maybe it's just the opposite. There's not
a clear vision. They don't
have good financials. They
don't have a proven track record. Where
are situations where
you've seen debt be taken on
and you know that's not the right call? I
think it's the inverse of what I said,
(01:32:16):
so we can just start with that. So when
you don't have those
things, I wouldn't be comfortable
doing it. If I didn't feel like I had all
the tools ready to
present to them, I wouldn't have
even felt comfortable having money. What
would I do with it? If I
don't know what I'm exactly
going to do with it, when I'm going to
spend it, where it's going to
go. Knowing that I owe it back
to somebody, just inherently that is a
pressure that you hold, or
(01:32:38):
at least I do internally.
Having that whole plan is the most
important piece. So
if you don't have that,
probably shouldn't take on debt. The
other area that we've seen brands,
like sadly through some clients through
Homestead or just other
brands just in the ecosystem,
even some of the brands that we bought in
the portfolio historically, I mean,
they took on debt to run Facebook ads,
things like that. It's
like, you're taking on money,
you're going to pay 10% to 20% APR
(01:33:01):
interest on it. And you're going to try
and turn a dollar into
more dollars, but you're not doing really
the math on how much return
you need to make off of the
dollar you're investing into something
that isn't guaranteed. The guaranteed
thing about us is if we
buy yarn to make stocks, we're getting
yarn. I know I'm getting
yarn and I'm getting what I'm
paying for. If I go use it for something
(01:33:22):
that has a higher risk
potential, I don't know that I'm
going to get back what I've planned. So
to me, that's where I think
using debt for things like
inventory is a great use. It's an asset,
at least it can be turned
into something. Using it for
inventory that are risky, so maybe new
products I would be
cautious to use it for.
Taking big swings like, "Hey, our
(01:33:43):
business isn't working really well. Maybe
if we go take this big
swing with this influencer or partner,
new product launch," probably wouldn't
use debt to go do that.
I would definitely try to self fund that
because it could go to
zero. So I think it's using it
for things that don't have the risk in
itself is usually when debt is more
appropriately useful.
It is a risk through and through. That is
the point of it. True.
(01:34:04):
Yeah. And that's why they
charge interest. That's part of the
business is they take on the
risk of you and you take on the
risk of having to pay someone back. But
that's how I think about
it. Yeah. It's very cool. It's
clearly a relationship. It's something
that has allowed you to
scale. I know there's plenty of
other examples of mutual friends too that
Wayflyers helps scale. So utilizing this
tool, utilizing debt
(01:34:24):
as a tool and a strategic lever. So it's
cool to go through it. I
think we should transition into
a new segment of the show called
Financial Thought Cups,
where we talk about things that
we've seen that are messed up in
finances. One of my personal
favorites is when people get a
credit line from Meta, I'm always like,
"You're NGMI. You're not
(01:34:46):
going to." It just makes me
nervous. I don't know how you guys feel.
But when I see that
happening and them not being able to
pay via the credit card, that makes me a
little nervous. One of the
first times I was ever exposed
to a Meta credit line was when I got
access to an ad account that
owed Meta a million dollars.
And they didn't pay it. And they still
haven't paid it. And there was no
(01:35:06):
intention to pay it.
And this was years ago. And I was like,
"Oh, I didn't know that
they would let you do that."
But they thought you should do that. And
that was crazy. So yeah,
that's my contribution to the
Financial Thought Cups. I've seen... I
mean, we've had clients take Shopify
capital loans and I don't
have a strong opinion. I don't know
enough about this. So this episode was
super interesting for
(01:35:26):
me to just sit back and listen because I
don't know and I don't know
here. And I know that maybe
Shopify capital interest rates are not
the best for people. But if you need
money with intent and
you have plans behind it, it can still
work, I'm sure. But generally
the reasons they took it was,
okay, they're probably under some kind of
pressure. They feel like they need it.
Understandable in the moment. But to your
(01:35:47):
point, it was to pay down a
credit card for a marketing
spend that was never going to pay itself
back or was going to take
years to pay itself back.
Taking on debt. It's just like anything
else when you do in your business that
if it's a short term fix and there's not
a plan of how that will be avoided,
then it's a band aid and that's going to
be something that
you're going to lean on and
(01:36:08):
it's not a good thing. It's like you need
a plan for how you aren't
going to necessarily need
this short term stuff. If you're talking
about what Zach's
talking about with Wayflyer,
it's a long term relationship. They know
his business intimately.
He's repaying. It's a good
thing. They're unlocking growth that he
wouldn't have, which is awesome. But
there's all these...
But when you have a Shopify capital loan,
(01:36:31):
it's like that I think is
okay, but you have to have
a plan with these small little things of
how you're going to
actually not be dependent on it
and how you're going to build the
business to the point of
real growth. Because otherwise,
that kind of stuff, if you're not smart
about it, obviously the
interest can kill you. It can
double and triple down on you. And then
next thing you know, you're taking out
credit lines for metal.
(01:36:52):
It's bad. And the reality is too, all
this goes back to what you guys have
talked about on this
podcast a bunch, which is you have to
know your numbers. You have
to know the cost of landed
product, the pick pack fees. It has to
all be part of this
equation because we've all seen it
running agencies. People walk into a
corner and then they don't know and
(01:37:14):
they're looking only
at Meta ROAS and you're like, "There's
more to the story here."
And next thing you know,
they're not making anything because they
haven't known the full
picture of the business.
Yeah. Only contribution to financial
fuckups is recently heard
of a brand that has gotten
pretty big that was postponing state
sales tax and just got hit
(01:37:35):
with a ringer there. So make sure
you're looking into that because that can
be one that can definitely
punch you in the ass if you're
not paying your taxes. It turns out not
paying your taxes is rough.
That's going to be a really
difficult future for you and the state
and the federal government will find you.
Yes. But yeah, no, I mean, there's a
(01:37:58):
million stories, right? I
mean, there's a lot of these
and it's sad. It's a bummer that a lot of
these brands go through
this to the point where they
run into too much debt and the debt
payments alone monthly, they just can't
cover. And so things go
under. But I think the best bet there is
just having the plan, really
understanding your numbers,
having the plan, knowing what you're
going to use the money for and following
through with what you
(01:38:18):
say you're going to do. And if you can do
those things and it might
require working your ass off
and putting a bunch of hours in to make
sure things go to plan, if you can do
that and that can compound
your over a year, it can really give you
the extra fuel that you need
to really push growth. And we
at Hala would not be hitting the numbers
that we're hitting and the
volume that we're hitting as
quickly as we were being a bootstrap
company and not taking any
equity rounds without debt. So
(01:38:40):
it's been incredibly useful for us. Well,
Zach, thanks for sharing
the story. And if people have
questions about it, they can email me,
Andrew at FoxwellDigital.com.
I'm happy to get you over to
Zach and get connected or hit the guys up
on Twitter and we can
get you connected with the
WayFlyer team. That's not a problem.
Before we go, it's important to say that
WayFlyer is sponsoring
this episode, of course. However, we only
(01:39:01):
work with the sponsors
that we truly trust and know.
And so that's why we've chosen to work
with them on this because we
think it's an important thing
to unlock and we have bills to pay. So
back off. So thank you for
listening and we appreciate all
of you and we'll look forward to the next
episode. Thanks everyone.
The only way that we grow this podcast is
(01:39:27):
by you sharing it with
your friends. Honestly,
reviews don't really mean anything too
much anymore. They're really meaningful,
but they don't do a lot for the growth of
the podcast. And so
sharing YouTube links,
sharing Spotify links, sharing Apple,
whatever we call it under the
podcast app now, anything you
can share, the better we're going to be.
(01:39:47):
Guys, anything else
you want to say on this?
Yeah, please go check us out on YouTube,
rack up those views for us.
We'd love to see it. And then
subscribe, make sure to subscribe on
YouTube as well. And I
relentlessly refresh the YouTube
comments because it dictates my mental
health for the day. So please say
something nice about all of
us. Thank you everyone. Thanks for
listening. Honestly.
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy, Jess Hilarious, And Charlamagne Tha God!