September 30, 2025 • 47 mins
Behind every successful e-commerce business lies a crucial truth that most founders miss: profit matters more than revenue. Taylor Holiday, CEO of Common Thread Collective, knows this firsthand. After transitioning from professional baseball with the New York Yankees to the world of e-commerce, he discovered that building sustainable online businesses requires a fundamentally different approach than what most marketers preach.
The harsh reality? The median eight-figure e-commerce business operates on razor-thin 6.5% profit margins. This creates a brutal catch-22: growing businesses need capital for inventory, but their margins often don't generate enough cash to fund that growth. As Taylor explains, this is why so many entrepreneurs find themselves with impressive revenue figures but empty bank accounts.
What separates thriving e-commerce brands from struggling ones? Taylor identifies three key leverage points that the most successful companies exploit: organic audience reach that reduces customer acquisition costs, exceptional lifetime customer value that justifies higher initial marketing spend, or supply chain advantages that enable nimble inventory management. Without at least one of these advantages, businesses inevitably face commoditization as competition drives margins toward zero.
Taylor's "four-quarter accounting" framework offers a practical solution for e-commerce operators. By dividing the P&L into cost of delivery, customer acquisition, operating expenses, and profit—and aiming for roughly 25% in each category—founders can quickly identify and address imbalances. Most importantly, he advocates tracking contribution margin (gross margin minus ad spend) as the north star metric for evaluating marketing performance.
Whether you're struggling with cash flow despite growing sales, wondering why your marketing efforts aren't translating to actual profit, or simply looking to build a more sustainable e-commerce operation, Taylor's insights challenge conventional wisdom and provide a roadmap for building businesses that don't just generate impressive revenue but actually put money in your pocket. Isn't that the whole point?
How to connect with Taylor?
Website: https://commonthreadco.com/?utm_source=chatgpt.com
Tiktok: https://www.tiktok.com/@commonthreadco
YouTube: https://www.youtube.com/channel/UCjtbFqsqVORPBJMein0zLWQ
Facebook: https://www.facebook.com/commonthreadco/
Linkedin: https://www.linkedin.com/company/common-thread-collective/
Instagram: https://www.instagram.com/taylorholiday/?hl=en
Twitter: https://x.com/taylorholiday?lang=en
Ready to scale your Amazon business? Click here to book a strategy call. https://calendly.com/firingtheman/amazon
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome everyone to the Firing the man podcast, a
show for anyone who wants to betheir own boss.
If you sit in a cubicle everyday and know you are capable of
more, then join us.
This show will help you build abusiness and grow your passive
income streams in just a fewshort hours per day.
And now your hosts, serialentrepreneurs David Shomer and
(00:22):
Ken Wilson entrepreneurs DavidShomer and Ken Wilson.
Speaker 2 (00:32):
Welcome to Firing the man, the podcast for
entrepreneurs, brand buildersand e-commerce operators poised
to move beyond the hustle andinto ownership that scales.
I'm your host, david Shomer,and today's guest is the kind of
founder who transforms hisbackstory into a blueprint for
generational level growth.
Meet Taylor Holliday, the CEOand co-founder of Common Thread
(00:54):
Collective, the e-commercegrowth agency that's earned a
reputation as the CFO's favoritemarketing partner favorite
marketing partner.
He's built his company from asmall office above Blue Frog
Bakery into an influentialfull-service profit agency
focused on Reddit-free,data-driven growth.
Taylor helps brands scaleprofitably with precision, not
(01:18):
guesswork.
Before marketing became hisheadline, taylor played college
baseball at UC Irvine and evenhad a stint with the New York
Yankees, so he knows a thing ortwo about teamwork, pressure and
precision.
Under his leadership, commonThread has pioneered standout
programs like the AdmissionMembership, the D2C Index Data
(01:39):
Tool and the e-commerce playbookpodcast, where Taylor drops
no-nonsense strategy straightfrom the front lines.
Today we're diving beyond thecurtains of ad spend and fluff
into how Taylor engineersscalable systems that boost both
profitability and longevity,feeding your business growth
while preserving vision andculture.
(02:01):
If you're done chasing vanitymetrics and ready for growth,
that pays the rent and then some.
This episode is for you, Taylor.
Very excited to have you on theshow.
Welcome.
Speaker 3 (02:13):
That was impressive, David.
I might need to copy that, andjust so that anytime I get asked
for a bio I could just sendthem that.
So thank you for saving me alot of time.
Speaker 2 (02:22):
Absolutely, absolutely.
So to start things off, can youshare a little bit about your
path in the entrepreneurialworld?
Speaker 3 (02:30):
Yeah, I hate to sound cliche, but in some ways it was
very accidental.
Other than I would say thatbeing an athlete which was my
first life you described is inand of itself a very
entrepreneurial endeavor, in thesense that you are your own
business and your career is justa byproduct of what you're able
to create for yourself.
And especially as you move intothe professional ranks, you
(02:51):
learn very quickly that it movesfrom being a team game to one
of individual success veryquickly, and so there was a lot
about that experience that Ithink shaped me for
entrepreneurship more than I wasconscious of, because I didn't
grow up with that as an ideal.
I never sort of really aspiredto that endeavor, but when I was
released by the Yankees Ithought I was going to go to law
(03:12):
school.
That was kind of the path Ithought I was going to go on.
So I had a year of school tofinish up because I was drafted
as a junior in college and I hada friend that was starting a
business and I needed apart-time gig to pay some bills
and he invited me to come, uh,do the job of printing orders
off the website and taking themto the post office packaging
(03:35):
them up.
I had a little label printer onmy desk and this was one of my
really good friends growing upas a, as a kid, and so it was
really hanging out with myfriends and doing a little bit
of work and getting paid for it.
And all of a sudden, thatcompany exploded in growth and
and so, very accidentally, I wasinside of a growing startup.
Um, and all of a sudden I waslike, oh, this feels a lot like
the locker room, like this is myreally good friends working
(03:55):
towards a common goal.
It didn't feel like work.
There was no nine to five, itwas just.
We were always there.
We were all young and single,and so I kind of became
captivated by what that could be.
And, as that sort of grew, itbecame this question of like,
well, this is like a real jobnow what are you going to do?
And I was like well, I knowmore about this website than
anybody else, so maybe I'll doe-commerce.
(04:15):
And there's this new thingcalled Facebook.
I'll set that up for us, and Iknow some famous people from
when I played back in the day.
I could send them some productsso pretty quickly.
I was in charge of e-commerce,social media and influencer
marketing, and it just sohappened, that's where the world
went, so I got very lucky inthat sense.
Speaker 2 (04:30):
I love it.
I love it.
Now, one thing that stood outto me and I will share with you
I'm a retired CPA, and so thisreally my people my people.
That's right, dude, it's myspreadsheet.
Brothers and sisters, so one ofthe things that Common Thread
Collective does is it comes tomarket as a profit-first growth
(04:53):
agency, and that is puttingprofit before revenue, before
keyword ranking, before a lot ofother metrics that a lot of
agencies like to focus on.
And so can you explain yourrationale there and how you
handle things, maybe a littlebit differently than some other
agencies?
Speaker 3 (05:11):
Yeah, I think this kind of is born out of the fact
that I didn't grow up as aclassical marker.
I was never trained on theappropriate proxy metrics of
marketing.
So when you're a startup who'sbootstrapped whether that's as
the founder or inside of acompany that is that way.
All anybody cares about is howmuch money is in the bank
account.
So I grew up in an environmentand, as a leader, have always
(05:32):
felt that like if you're goingto tell me you're going to go do
something from a marketingstandpoint or anything else, the
measure of success should bedoes the bank account grow?
And that was just sort of thedefault way.
I was sort of raised in thisworld and so I didn't know any
different, and it was seeminglyintuitive to me that if you give
a dollar out, you'd want morethan that back, and so we, from
our very earliest days, alwayssort of were bent to drive
(05:56):
towards marketing tactics thatproduce financial outcomes.
And then I would say, as I grewas a CEO, even in my own
business, I began to understandthat the P&L is the scoreboard,
to stick with my sports metaphor, that that is like actually how
I would define my own successor failure.
And so, as a business, as apartner, I wanted to be able to
impact that scoreboard and to doso, I felt like I needed to
(06:18):
understand it.
I needed to understand thelanguage of finance and
accounting, because it really is, the measure of success of
business is money.
I really believe that, and so Ithink to understand the rules
of the game, to understand thescoreboard and be able to affect
it, allows you to be in theposition of the greatest
influence.
Speaker 2 (06:34):
Absolutely, absolutely.
I have often said when I'vebeen hiring or firing agencies
you don't buy groceries withrevenue, you buy it with net
income, and so I couldn't agreewith you more.
And so I don't know if this.
I've been in the e-commerceindustry for a while and so I
may be jaded by that, but itseems like in this industry,
(06:57):
people are very much focused ontop line, on your revenue, and
when people are flexing onInstagram or Facebook, they're
posting their revenue, not theirnet revenue.
And when people are flexing onInstagram or Facebook, they're
posting their revenue, not theirnet income.
And I've personally experiencedthis, and I've met a lot of
people that seem to sell atbreak-even.
They may have an impressiverevenue number, but at the end
of the day, they're just kind ofrunning on a treadmill and not
(07:21):
going anywhere.
And so what have been somethings that you've seen in terms
of companies that you've workedwith where there has been a
hole in the boat, where they areat breakeven and they need to
make some changes?
Speaker 3 (07:35):
Yeah.
So I'm going to get a littlenerdy here, because I think
there's an important context forwhy I think some of this exists
the way it does.
The business objective that ourindustry pursues is almost
directly correlated to theavailability of capital to fund
the growth.
So, if we look back over thelast five years, we're coming
out of an era of an abundance offree capital, and I mean free
(07:58):
capital in a couple differentways.
One is like equity capital.
There was a period of time let'scall it from beginning of COVID
to 2022, where there was amassive influx of equity capital
into consumer.
They thought it was like goingto be the next big thing.
The world was changing, we werebecoming China, all the things
right.
And then you overlay that withreally cheap debt.
(08:18):
So then you have debt capitalthat is really cheap and easy to
access.
And there was this period oflike, wildly like.
When interest rates at the Fedlevel are low, it pushes out all
the lenders that are built ontop of that further out on the
risk curve.
So they start doing really wildthings like lending,
underwriting your ad account andlending you money at unsecured
(08:43):
on the basis of your Facebookaccount Like this was happening
and there was just so much moneysloshing around compiled with
an abundance of consumer demand,because retail shut down and
there was this only game in town.
And so all of a sudden, in thatmoment, the idea of funding
top-line revenue growth withouta consideration for the net
(09:03):
result on net income or evenfree cash flow is okay, because
you in your head, you're like,well, I could just get more debt
, there's more equity capital orthere's enough demand that
maybe the efficiency is goodenough, and so this behavioral
pattern gets built into that.
But what I watched happen isthat suddenly all of that got
shut off, like, I mean, as fastas it came in, it went out.
There was in our industry.
(09:24):
We went from, in two years,there was $5 billion in venture
capital to the the in 2023,there was less than a hundred
million like funded into ourspace.
So that disappeared.
Interest rates went from alltime lows to really high.
All of those lenders blew up,and so you couldn't get debt,
you couldn't get equity and youhad to self fund your own growth
(09:44):
.
That changes everything ine-commerce when you actually
have to produce not even justnet income.
You have to produce freecashflow that you can use to buy
the next tranche of inventory.
The entire business changes andthat's what we've gone through
over the last really 24 monthsis it's forced everyone to
completely reconsider the gamethey're playing.
Speaker 2 (10:09):
So, dan, there's so many really, really good things
there, and one thing that youtouched on that I'd like to go a
little bit deeper on is fundingthat next tranche of inventory,
and I will share an experiencewith you.
During COVID, I grew a brandfrom about $500,000 to $1.5
million.
People who've never run abusiness would look at me and
say you must be cashflow rich.
However, I've never felt morecashflow poor, and can you
(10:32):
discuss that, that cashflowconversion cycle and how
companies can get in trouble bygrowing?
That's right.
Speaker 3 (10:39):
So I'm going to again , I'm going to stay with me on
those as I walk through thesenumbers and if stop me if I'm
being confusing, because it'shard.
This is somewhat complicated tounderstand.
So the median cash conversioncycle for an eight-figure
e-commerce business is about 90days.
So that means from the day thatyou place a PO to inventory
(11:08):
until you can sell and turn thatback into cash, it's about 90
days, right and so.
So what that means is that youare having to outlay capital and
float it for a very long timebefore you realize that money
back.
Okay, so that, unlike a servicebusiness like I'm in, where
there's basically a directrelationship between the revenue
realization and my cost, it'salmost like I pay my people the
same.
Sometimes I even get the moneyahead of time paying the people.
So I have some.
In some cases I have a negativecash conversion cycle.
(11:28):
E-commerce is incrediblycomplicated because it has this
opposite, and so you have this90 days.
That means you're carrying 90days worth of inventory roughly
on hand about a three-monthperiod in order to support that.
So now imagine you want to grow50% next year.
So let's say you had an awesomeyear.
(11:48):
You just described going from500,000 to 1.5 million.
That's 300% growth.
But let's just imagine you wantto grow 50%, which would still
be incredible.
That means that you have tohave, if you sold a million
dollars worth of product at acost level not at a retail level
a million dollars at a costlevel, you need to go buy 1.5
million with it.
So if your net result of sellingthat million dollars of retail
(12:12):
let's say it's 3 million inretail value, just using some
base, that would be pretty goodgross margin 66% you have to net
50% on that in order to be ableto afford that next tranche of
growth.
And here's the truth is thatthe cost of that revenue from an
advertising standpoint isn'tlikely to produce that kind of
net result.
And so even when you're quoteunquote winning on a P and L
(12:34):
basis, your bank account canactually be going backwards.
And this is this is whye-commerce is so inherently
challenging is because it is avery capital intensive business,
um, business that demands a lotof financing considered in that
process, and then sometimes youjust get the inventory wrong.
It's really hard to forecastthat far out, like there's all
sorts of really difficultchallenges based on the capital
(12:55):
requirements of buying physicalgoods, having them shipped to
you from across the world andthen trying to sell them.
Speaker 2 (13:01):
Absolutely, and that was really well put to people
that are maybe in this situation.
You should rewind and listen tothat again, because that was
really really well put and it'sone of those things that you
almost have to go through tobelieve it and so great
(13:22):
explanation.
So, moving on, your agency hasbuilt some data-driven tools,
like the D2C Index, and so howdo you see technology and
analytics reshaping the waye-commerce founders make
marketing and growth decisions?
Speaker 3 (13:39):
Yeah.
So there's a lot under thebanner of technology and data.
So I'm going to first talkabout the D2C index, then I'm
going to come back to thebroader technology piece of
e-commerce because I think it'simportant.
I think about my job as anagency as providing context to
an individual brand.
So what's sometimes hard abouthaving your own data set is you
(14:00):
never really know what's good.
You're always comparingyourself to yourself.
Is my payroll too high?
Is my profit margin good?
Is our revenue growth okay?
How's our gross margin comparedto the other people in the
category?
Am I getting ripped off by mymanufacturer?
Like?
These are all questions that,in isolation, any individual
data set makes it really hard toanswer.
Well, being an agency, we haveviews into tons of data, right,
(14:22):
and so we wanted to create themost powerful set of context for
the journey that we could toour partners, and so we built
this data co-op across two otheradditional providers.
One is called Veros, which isthe largest free available data
set of aggregate mediaperformance.
A brand called NoCommerce,which does survey data, so
layering in some qualitativedata and then, alongside our own
(14:43):
data set, to be able to provideour partners and the industry
with the best view ofcomparative performance metrics
across the e-commerce stack thatwe could.
This also allows us to do a lotof really cool stuff around
data modeling and trying toprovide a PO view.
On the macro economy, likethere's always a lot of
discussion about is consumerdemand soft?
What's happening to meta CPMs?
(15:04):
Are they rising?
And people are always lookingfor this question Is it a me
problem or is it a marketproblem?
And so oftentimes we try anduse this data set as a tool to
help provide context on thatjourney.
So that's one thing I thinkabout it as an agency's.
One of our broaderresponsibilities is to leverage
the mass amount of data that wehave.
So that's how we do that themass amount of data that we have
.
So that's how we do that.
(15:26):
In regards to technology, wejust got done with the segment
where we're talking about thismargin problem.
That challenges e-commerce isthat you've got gross margin.
That's really hard to get toolow, because you've got to
manufacture a product, you'vegot to ship it a long ways,
you've got to fulfill it to thecustomer.
There's all these obligatorycosts on the cog side, and then
there's what everybody wouldrefer to as, like the Mark
Zuckerberg tax.
We all got to pay Meta to driveour traffic to the website or
(15:47):
Amazon or whoever you're usingto source your demand from, and
the reality is is that the netresult is not very much margin.
The median EBITDA so earningbefore income tax depreciation
or amortization for ane-commerce business of eight
figures is about six and a halfpercent.
That's like that is not veryhigh.
Okay, and so what that means isthat this is a business that
(16:09):
that demands operationalleverage.
It demands on low OPEX.
You have to be able to driveleverage on your fixed costs in
e-commerce.
It is not a big employee basedbusiness.
So what that means is that thebrands that I'm watching today
in particular drive growth andhigher profit than the median
seeing sometimes all the way upto 30% are doing it through two
(16:32):
key ways.
One is they're creating laborleverage through technology, and
that could be in the form of AI.
That could be in the form ofjust using tooling and the
software that's out there tohelp minimize the amount of
employees that you need to runthe business.
There's a lot that you canaccomplish there.
And then the second is thatthey create demand leverage
through some sort of organicaudience.
(16:52):
Usually that could be from,they have a large YouTube
account or they're an influencerwith some base built in.
Those are two ways that thebrands that I see produce.
Really disproportionatelyefficient e-commerce businesses
have to create leveragesomewhere in the P&L.
And there's only so far you cango on the cost of goods side,
because these are real likeatoms out in the world.
You can only compress them somuch in cost.
(17:12):
So that's sort of the way Ithink about technology inside of
an e-commerce business.
Speaker 2 (17:16):
I love it.
The EBITDA margin of 6% isstaggering to me, and especially
Well and think about that whenyou go back to the growth
problem Like you can't.
Speaker 3 (17:25):
That doesn't produce enough cash to fund growth Like
that's, and so you're stagnant.
It's hard.
Speaker 2 (17:29):
Absolutely Well.
So when you've talked a lotabout we've talked about revenue
, we've talked about grossmargin ad spend, leveraging
labor in an organic audience,when you look at a P&L, what KPI
is most important to you?
Speaker 3 (17:48):
So I have a few that I like.
One.
I have this very basicframework that I try and
simplify down, calledfour-quarter accounting.
So one of the easiest ways todissect a P&L and to look at it
and glance and identify aproblem is I would break the P&L
into four categories.
The first would be what I wouldcall cost of delivery, so this
is your product costs and allvariable expenses associated
(18:09):
with getting the product to thecustomer.
So this is your shipping andfulfillment fees.
This is your payment processorfees.
Anything that goes up as ordercount goes up.
Okay, that's like light itemone.
The second then is CAC.
So think about this as variablemarketing expense, your
performance marketing using todrive demand.
So, and then the third is OPEX,is your fixed expenses.
(18:29):
This is payroll, your rent,your software expenses.
And then the fourth category isprofit.
And if you were to use like 25%as the baseline for all of
those, I use this visual whereI'll sort of draw where you're
at in each category and it givesme, at glance, the ability to
sort of then dive deeper intowhy is your OPEX 35% of revenue?
That's not going to work ine-commerce.
Where's the problem here?
(18:50):
Where is the profit being eatenup and then, therefore, where
can we go and try and solve forsome of those challenges eaten
up?
And then, therefore, where canwe go and try and solve for some
of those challenges?
Because the ideal scenario iswe're actually using that
marketing line item to drivegrowth.
So volume of growth.
And so if I have high OPEX andhigh cost of delivery, I'm not
going to be able to fund muchgrowth.
I'm going to be really stagnantthere.
So I've got to solve differentproblems.
So that's one very simple waythat I look at it.
(19:13):
The next would be, if I need asingle metric if you just want
me to do it, it's actually aline item I would encourage
people to put onto their P&L,but most accountants wouldn't do
by default and that'scontribution margin.
So contribution dollars.
So think of this as grossmargin minus ad spend.
That number is the number thatultimately is the value that I
see my business producing on ademand basis.
(19:34):
That then helps me orient whatI can actually afford to do on
the fixed cost side, and sothat's a number.
It's above the line, so tospeak, right before you get to
your fixed costs.
That helps you look at it andit's what we track with all of
our partners on a day in and dayout basis.
Speaker 2 (19:49):
I am not just saying this, that if I had to pick a
single metric, it'd be grossmargin after ad spend, that's
right.
Exactly as you described, andyou take a platform like Amazon
that really is kind of apay-to-play platform.
That's right.
You turn PPC off, your revenuegoes down, and so taking that
into account is huge, and so Iam really glad that you said
(20:12):
that.
The four-quarter accountingI've never thought of it that
way, but I really like it, andso I'm curious, when you're
working with companies, whichsection tends to be an area
where they need to focus on?
Is it OPEX?
Is it COGS?
Where is it?
That's a great question.
Speaker 3 (20:29):
So, generally speaking, what happens is
somebody comes to me and says weneed I was literally having
this conversation yesterday weneed a five to one ROAS in order
to make money, and right away alight bulb is going off in my
head.
That's like wait a second,that's like a 95th percentile
outcome, cause I have acontextual data set that tells
me like that means you wouldhave to be one of the best
(20:51):
advertisers in the world inorder to accomplish that result.
What is true that makes youbelieve you need to drive that
kind of demand?
And so then when I go and lookand I look at the cost of
delivery, and then I look attheir OPEX and what they're
trying to solve for in theirhead is they've got a bloated
OPEX, and so they're like oh, inorder to maintain all these
(21:11):
people that I have on staff, Ihave to then produce marketing
that is disproportionatelyefficient.
But the problem there is notactually a marketing problem,
it's an OPEX problem.
You have too much staff for thesize of your business, and if
you were to drive that down,then we could actually probably
maximize contribution dollars atsomething closer to a three to
one or 2.8 to one, and so now wewent from obligating ourselves
(21:32):
to creating a 95th percentileadvert and and this is why, like
, a lot of people have like aconstant churn of marketers or
agencies is because they're like, well, nobody could produce
this result, and it's like, yeah, because that's a result that
is like so disproportionaterelative to the expectation that
, of course, people are failingat it constantly, and so if we
could drive that down actuallyand actually get to a place
where we're producing a 75thpercentile outcome or something
(21:54):
like that, and you're stillmaking money now, the business
can grow.
So oftentimes I see this likethere's this conflation between
what is impeding our growthbeing marketing efficiency
versus oh wait, you're actuallylike, really wasteful in your
fulfillment expense, yourshipping costs are way too high,
or, hey, your return rate hasactually gone from 6% to 12% and
(22:15):
we've lost a ton of money, andso we need to solve that problem
.
It's a product problem, not amarketing problem.
You know, there's those kindsof things that we discover all
the time.
Speaker 2 (22:25):
I love it.
I'm really nerding out rightnow.
I really, really enjoy this andit's bringing to light a
different perspective and I'dlike to go a little deeper here.
So, because you have the D2Cindex, because you're working
with multiple successfule-commerce companies, what are
(22:45):
some of the characteristics ofthe winners?
And that may be price point,that may be the markets that
they're selling in, maybe it'show they're driving customers.
But of the winners, do you seeany common threads?
Speaker 3 (22:58):
So we have something that we do called your GQ score
growth quotient score wherewe'll put together a set of
initial attributes to determineyour growth potential, and then
we index those against all theclients we have, and we have the
subset of brands that we callduckweed brands.
So a duckweed brand duckweed isthe fastest growing plant on
earth, and the reason it growsso fast is because it can grow
(23:20):
at night.
It doesn't actually requirephotosynthesis to grow.
It's like weird in its geneticmakeup, and so it grows faster
than every other plant.
And so the idea is these arebrands that can grow in any
environment.
They will grow fast, whetherit's a bad economy, a good
economy or whatever, and sothat's the metaphor we use for
these, this characteristic setof brands, and I'm going to give
you some examples.
So I talked about the idea thatyou have to have leverage
(23:43):
somewhere in your P&L, so someattribute that gives you the
opportunity to be more effectivethan everybody else, and so
there's a few places I see thisshow up.
I mentioned one of them, soI'll just repeat it quickly is
that you have organic revenuethat does not require you to pay
for the realization of it, andusually this is because you're
an influencer with a hugeexisting audience.
(24:03):
Influencer-led brands have animmediate leverage on the P&L.
They don't have to pay the CACprice that we all do to go drive
Facebook ads.
They can drive it off of theirexisting audience in a way that
gives them a massive immediateleverage point.
So that's a thing that I see alot.
Two is you have greater than a100% increase in lifetime value
within one year.
So if someone pays you $100 onfirst order, that customer has
(24:26):
become worth $200 in one year.
So this is often why you seesubscription brands in the
supplement space do really wellon e-commerce Because they
generally capture a lot ofincremental value over time off
of one customer.
So they can be at a slight lossor even break even on a CAC
basis and then it can still makea ton of money.
(24:47):
So they have a higher return oninvested capital because they
are able to increase the valueof that customer substantially
over time.
That is.
You'll see this attribute inapparel brands, you'll see it in
subscription brands, not inhard goods, right?
That's why that category tendsto be really challenging.
So that's a second commonattribute.
The third would be you have, forwhatever reason, created some
(25:07):
leverage in your supply chain,and that could be because you
have a manufacturing partnershipthat allows you to have a
negative cash conversion cycleor some way that the terms have
been deferred in a way, orthere's some relational equity
where you can fund growthcheaper than everybody else.
It's a leverage point thatdoesn't guarantee demand, but it
is something that I see thatbrands who have this are able to
take more risk on the productside, because net new product
(25:28):
creation is often a driver fordemand creation, and so by
offsetting that risk of tryingsomething new, a new skew, a new
color, a new whatever youactually create leverage in the
marketing side through yoursupply chain.
The best example I've ever seenof this is a company called
ColourPop that sells makeup, andif you think about a category
(25:50):
like that, it's so trend basedRight.
So trend-based right.
There's something new happeningall the time that if you have a
really long supply chain, it'sreally hard to get in that game
and like predict ahead of timewhat's going to be cool four
months from now.
And so what they have is inOxnard, california, a giant
manufacturing facility wherethey do their supply out of.
It's not their primarymanufacturer, but what they've
built inside of their warehouseis basically a lab that could
(26:14):
spin up 200 SKUs of anythingreally fast, and so the way that
they offset their productionrisk is they are able to build
really small batch runproduction to test the demand
for something, something new,really, really fast, and so
that's sort of a way ofinverting that inventory risk
that often for new products islimited because you don't know
(26:36):
the demand yet, and so you'reguessing do I order a thousand?
Do I order a million?
How many are going to be there?
And that's going back toearlier conference.
That's how you die, right, andso creating leverage in your
supply chain is another way.
So I'll stop there, because Icould.
I could go on with some more,but those are a few that I see
all the time.
Speaker 2 (26:50):
I know I think those are three really really, really
good ones, and so let's look atthe opposite side of that.
What are some of the commonthreads of the losers?
The people that are not goingto scale beyond where they're at
or will go out of business.
Speaker 3 (27:06):
So a bad combination is a single purchase item, so
usually a hard good.
Think about this like if I wasselling an individual hairbrush.
Okay, a hairbrush is a low AOV,mediocre margin, with no
recurring purchases.
That combination of attributesis almost impossible to sell
through your own demand creationvehicle like your own website.
(27:29):
A lot of times you'll see thatsort of commodity set of goods
end up on Amazon where they'rejust trying to siphon demand
capture.
They're just trying to putthemselves into the search
volume for combs and not pay forany of the demand creation.
But it's ultimately socompetitive there's no barrier
to entry and ultimately all theprofits sort of get competed
down to nothing, right?
And so any hard good thatdoesn't have great LTV has
(27:52):
mediocre AOV and no LTV is areally hard e-commerce business.
It's really really challenging.
And then you could sort oflayer on additional things
related to TAM, like how manycustomers are there potentially,
and then ultimately like anunderappreciated thing in our
business is actually IPs, likewhat's the moat?
One of the things that'sfascinating to watch is how
(28:13):
perfect a capitalistic systemconsumer product is, and if you
want an illustration of this, goback and look what happened
when mask demand went throughthe roof.
The day before masks were amandate in the United States,
there was somebody that had anorganic SEO listing that was
making probably a nice littlebit of money and then suddenly,
overnight the demand outpacedthe supply massively and for a
(28:34):
very short moment in time thatperson was making was absolutely
printing cash.
But how fast those things comeback into right relationship, in
other words, how fast thesupply ramps up to meet demand
in our industry, especially in aproduct with no barrier to
entry on a production standpointthat's really cheap, is
unbelievable to watch.
It is so fast.
How quickly the profits willall get competed down to the
(28:57):
very last penny of price.
Amazon's a great illustrationof this.
One of the businesses that webuilt prior to my agency was a
company called Kalo.
We sold silicone wedding rings,so silicone wedding rings.
When we started, we were theonly one person selling the
product.
Now what's beautiful about thisproduct is it costs about a
nickel to make a siliconewedding ring and we could sell
it for 20 bucks.
So you want to talk aboutleveraging the P&L gross margin
(29:18):
through the roof.
But but while that sounds like afeature, the problem with it is
it's indefensible and leads toendless competition.
That means there's endless roomfor somebody to make money at
$18 and then at $15, and then at$10, and then at $9 and then at
$8.
And now, if you go look onamazon, remember when I started
this business there were zeropeople selling this product.
(29:38):
If you go look on amazon rightnow for silicone wedding rings,
there are thousands of listingsand people selling 10 of them
for two dollars.
All the profits get competeddown to zero because it's
indefensible, and so that's whatyou watch play out in almost
all of these product categoriesover time is that without some
moat, without some leveragepoint, all of it just gets
competed down to nothing.
Speaker 2 (30:00):
You talked I really like that point about the supply
and demand and how thecapitalistic society always
reaches equilibrium, and this issomething I've definitely
experienced.
For keywords.
Speaker 3 (30:13):
Exactly Search is a perfect example.
Speaker 2 (30:14):
Yes, that comb that say there's $10 of profit margin
, your keywords for that the bidwill be 50 cents at a 10%
conversion, and so I'm not sure,if my math's right, you end up
at breakeven and the supply anddemand and that really, really
(30:34):
tends to kill it.
Speaker 3 (30:36):
So this is why Google is the most billion dollar
business in the world is becauseit's literally a system
designed to do exactly that Isthat everyone will pay one cent
more for the click until they'reno longer making money, and so
what it does is it extracts allthe profits to them over time.
All the profits accrue to theunderlying auction-based ad
(30:58):
systems over time.
This is why the winner ofe-commerce is Google and Meta is
because what happens is, everyday, somebody looks at the
options in the auction and goesam I willing to pay a little bit
more, a little bit more, alittle bit more, a little bit
more to win the purchase, andinevitably, somebody is willing
to do it at a loss, which drivesall the profit out of the
category.
And so this is why, like, theunderlying digital real estate
(31:21):
of the internet is the SERP pageof Google, it's the SERP page
of Amazon and it's the feed ofInstagram Like, and in those
environments, they are perfectlydesigned to extract all the
profits to the ad engine.
That's the literal underlyingdesign of the system.
Speaker 2 (31:34):
So, knowing that, knowing that let's build out the
ideal marketing department,knowing that we can't lean fully
on ad spend or pay-per-clickadvertising, what would be, you
know, in that marketingdepartment, what would be the
components of it and how wouldyou allocate your costs?
Speaker 3 (31:54):
So I think that this really depends on the product
category that I'm in.
So I want us to narrow thequestion a little bit, and the
reason is is the primaryquestion I have to ask is is
most of my revenue going to comefrom new customer acquisition
or is it going to come from in,like the value of the existing
customers that I have?
So, really, is it asubscription business or is it a
(32:16):
single purchase business?
So I'll give you two marketexamples.
Like Ridge Wallets is abusiness that everybody loves in
the e-commerce space.
They talk about Sean's awesomeon Twitter.
If you don't follow him, thatis a new customer acquisition
engine.
They a hard wallet.
I'm buying one of those for mywhole life, like I don't need to
constantly repurchase, and soif you are interested in a new
(32:36):
customer acquisition engine typebusiness, go look at what
they've built.
There's two primary things thatare at the center of that.
One is a paid acquisition teamthat are killers.
The person who lead that teamcame from CTC.
I know him well.
His name's Jim.
He's awesome.
They are amazing at paid social.
They are amazing at search.
They are amazing at paid media.
They know how to create contentusually short form, vertical
(32:57):
video for that format to drivethat demand.
And then the second thing theyhave is new product development.
Is they recognize thateventually you have to launch
rings and then luggage and thenother things, because the wallet
business isn't going to growforever, and so those become the
core skills paid acquisitionand product development.
Now juxtapose that with acustomer of ours.
Like we work for the businesscalled Carnivore Snacks for a
(33:19):
long time, they have one product, it is meat chips, dehydrated
meat chips, and it issubscription.
And the bulk of the revenuetoday 85% to 90% of it comes
from the existing customer base,and so it is all about curating
the experience and the ongoingrelationship with people that
are already in your business.
That leads to an organizationthat's more focused on retention
(33:41):
, that's more email and SMSbased.
That's building community andrelationship.
So you'll end up with differentorganization relative to how
you monetize the customer side.
Speaker 2 (33:52):
I love it.
I love it and I do think it isdefinitely appropriate to break
it out into.
Are we acquiring first timecustomers or looking at repeat
customers?
And that's something that youshould be thinking about to all
of our listeners.
Speaker 3 (34:05):
Now, when you start, it's always new right.
So to start, it's always goingto be a new customer acquisition
, but I think having an eye forwhat kind of business am I
building long-term will getthere.
And then I think the otherthing is what kind of gross
margin do I have?
Am I going to be able to fundthis organically or with paid?
That would be the secondtranche is that if I have to
have new customer acquisition,am I going to be able to do this
(34:27):
through paid media and thatusually means I have high gross
margin or am I going to have tobuild an organic demand engine,
and in which case those wouldlead me to different paths as
well relative to the state of mybusiness?
Speaker 2 (34:46):
Okay, you've talked a little bit about influencer
marketing and how that may be agreat place to put some
resources, and I think one thingthat attracts some people not
all, but some people toe-commerce is it is kind of a
nameless and facelesstransaction.
Faceless transaction, and sooftentimes I find that, like
really good e-commerce operatorsare not people that are going
to get in front of a phone,record a selfie and talk about
the new product that they'relaunching.
(35:07):
And so for those types ofbrands and speaking to those
operators who don't have anorganic audience, who've tried
social media but isn't reallygood at it, what are some ways
that they can leverage thefollowing and influence of
others to get the same results?
Speaker 3 (35:26):
Yeah, so I think that if we just sort of break down,
the challenge here is thequestion is how do you access
audience at a price cheaper thanyour competition?
This is like a very simplequestion, right?
And if we both are going tomarket and paying full freight
for it on Meta, I have noleverage over my competition.
So the question is how couldyou?
(35:48):
Potentially?
Now I'll give you an example ofhow we did this in the very
early days of Kalo, so Kalo,silicone wedding rings.
One of the core use cases thatwe found was that there was
these certain sets ofprofessions that had to take off
their ring when they went towork.
Okay, because it was a safetyissue.
They would literally suffer forsomething called ring avulsion,
which think about getting yourmetal ring caught on an assembly
(36:11):
line and having it ripped off.
Like don't Google that, becauseit's disgusting, it's a real
thing.
So, and one of those is, uh,firefighters.
Okay, so you could imagine, um,firefighters are dealing with
all sorts of grabbing thingswith their hands moving very
quickly and they don't wearmetal wedding rings.
It's a, it's a safety risk totheir job.
We found, okay, so we have avery clear problem use case um,
(36:34):
it also is an industry thatsuffers from one of the highest
divorce rates in the world.
Um, very high stress.
So you have this communitythat's been built.
We found this woman called ran ablog called firefighter wives.
Okay, um, so right now we're abrand new business.
We have no relational equity ortrust or access to the
firefighter community, so wecould go advertise on meta to
(36:57):
firefighters and we would dothat, and that's not to say that
that couldn't be valuable.
But here was someone,firefighter wife, who had a
community of marriedfirefighters, who had our
problem and had our audience andwas a not a huge blog, but we
were able to build an affiliatebased relationship with her
where she would talk about theproduct she would promote it.
(37:17):
Where she would talk about theproduct she would promote it.
She'd talk about how herhusband can wear a ring on the
job for the very first time andshare it directly to a set of
customers at zero upfront costto us, zero initial risk.
And by accessing that audiencewe built one of the first
foundational pipelines ofcustomers for the business and
we built content and use caseand other stuff that we could
(37:40):
parlay into more effectiveadvertising.
But that's an example of likesort of a micro influencer that
owned our audience, hadauthority with them and could
help us to access it at a pricethat was $0 upfront right.
It would only only paid her inthe event that there was a sale
driven.
And so again, invert that cashconversion cycle we got our
revenue, then we paid her, notthe other way around With Meta
(38:01):
you got to pay them and then youhope you get your revenue in
return.
Speaker 2 (38:05):
I really like that and I'd like to dive into the
economics of the commissions ofthe affiliates that you're
paying out.
So say, you have a brand whosepost PPC gross margin is 30%,
and in this case there'sactually not PPC, right?
Right, if we're, just how muchof that margin would you be
willing to give away, and whattends to move the needle?
Speaker 3 (38:30):
So I think that the question there is if we
translate the percentage intodollars, you're going to get a
helpful directive on the answer.
So, in other words, if I'mselling actual engagement rings
that are $1,500, giving someone10% of that is $150 every time
they generate a sale.
If I'm selling a $20 weddingring and I'm giving away 10%,
(38:53):
it's $2.
Well, what's the incentive forthe person to work?
So, rather than the, I wouldtake a step back and I would try
and think about what wouldincentivize this human to work
for you, like, what would makethem want to go work hard to
drive it in a way that stillproduces a monetary outcome for
you.
So that's a question of howmuch volume do I think that they
can produce?
What am I willing to do for theinitial margin?
(39:15):
What's my cash position?
What's my LTV Like?
There's all these parts of thatquestion, but the key is you
want it to be valuable to them.
It's the same thing, like Itell people when they hire me is
that one of the mistakes peoplemake when they negotiate with
an agency is that they, likethey want to grind them down to
the lowest possible price.
And I just say, like it isactually counter to your
(39:35):
incentive to not be valuable tome.
If you are not valuable to me,you will not get my best and
brightest and our tension andenergy of the organization.
I would say the same thing withaffiliates.
You want to be the mostvaluable partner you can to the
most powerful affiliate thatexists.
Now you obviously want to dothat.
You don't want to do that at aloss.
You want to make money but youwant people to work hard for you
and to do that be valuable tothem.
Speaker 2 (39:57):
That's a really really good answer.
Speaker 3 (40:07):
I was thinking you were going to give me a flat
number.
Speaker 2 (40:08):
Sorry, no, no, no, Rarely going to get the short
path.
For me that's really reallygood and the price point on $150
item versus $20 item totallydifferent, and so, yeah, that is
really really good.
Can you talk more about CommonThread Collective?
What types of brands do youwork with?
Speaker 3 (40:25):
Yeah, so we work with what we call the early and
mid-market consumer e-com.
So if you sell something on theinternet and you're between
zero and a hundred million,that's our sweet spot is that we
don't work with the enterprise,we work with the little guy.
Our goal is to sort of bringenterprise level tooling to the
early stage e-commerce businessowner and help them grow
predictably and profitably.
So that's that's our sweet spot.
(40:46):
We don't work in B2B.
We don't help you sell airconditioning or services.
But if you're selling somethingon the Internet and you're in
sort of that early to mid marketstage, we want to help.
Speaker 2 (41:00):
What kind of problems do you often have clients
showing up with that you're?
Speaker 3 (41:02):
helping them solve those problems.
So our sweet spot is helpingbrands connect marketing and
finance, as we've talked about.
You probably get that sensethrough this episode is that
we're unique and that we do FP&Afor all of our customers.
So if you want to build a greatfinancial forecast that
connects to your marketingcalendar, that allows you to see
every day what the expectationof your marketing team is and
how it ladders up to the overallfinancial goal of your business
, that's the system that we'vedesigned.
(41:23):
We've designed something calledthe profit system, which is a
way of working for brands thatbrings those things together so
that operators can be reallyconfident that the work that our
team is doing is drivingtowards the financial outcome
that they care about.
Speaker 2 (41:34):
I love it.
I love it.
I will mention to the audienceover the years I've probably
hired and fired 15 to 20agencies.
Oftentimes, the common reasonis profitability.
When I'm running a business, Iwant to put a dollar into the
machine and get $1.20, $1.30back, and so, yeah, I love that
(41:55):
you're profit first and yeah,that's absolutely great.
So, to wrap things up, we havesomething called the fire round.
It's four questions.
We ask everybody at the end ofthe interview you ready, let's
do it?
All right, what's?
Speaker 3 (42:09):
your favorite book?
It's this one right here.
It's called the Carrot Seed.
It's a kid's book and I thinkit's the best book on
entrepreneurship ever written.
Speaker 2 (42:19):
Outstanding.
I'll add that to my.
I've got a five, three and oneyear old, so oh perfect, Get
them started early Awesome.
What are your hobbies?
Speaker 3 (42:28):
I coach my kids.
I have twin boys that are 11and a daughter that's eight, and
it is my current joy to figureout and learn how to be a coach.
It is so different than being aplayer.
I was not good at it when Istarted and I'm trying really
hard to be good at it, but, man,this feels like just such a
precious time of life with them.
I can feel them moving awayfrom me towards their friends.
(42:48):
I feel like I have this verynarrow window that I'm never
going to get back the rest of mylife, and so so much of my mind
and energy is occupied by thatchallenge outside of my
day-to-day work.
Speaker 2 (42:58):
That's outstanding.
What is one thing you do notmiss about working for the man?
Speaker 3 (43:03):
You know it's funny.
I don't know that I ever had anexperience that I would call
too much working for the manbecause, again, the closest
example was probably, honestly,the New York Yankees.
Felt very corporate to me,oddly enough, and there was a
lot I learned about that process.
Learning what it meant to beinside of a business that cared
about money was a lot I learnedabout that process, learning
what it meant to be inside of abusiness that cared about money.
But I have always greatlyappreciated the freedom I have
(43:25):
to take ownership andresponsibility for all my
problems and outcomes, andthere's something really
empowering about that that Idon't ever feel that I'm stuck.
I feel like I make mistakes andI screw things up, but at the
end of the day, I have immenseautonomy to change it, and if
something doesn't work or Idon't like my life, I get to
decide to change it.
If my wife needs me to pick upthe kids at three, or if I have
(43:46):
to stay home with them, I get todo that, and so that level of
control is really empowering andI think that it gives me a good
sense of responsibility for thelife I want.
Speaker 2 (44:01):
Love it.
And final question what do youthink sets apart successful
e-commerce entrepreneurs fromthose who give up, fail or never
get started?
Speaker 3 (44:07):
Yeah, man, such a great question.
I think a lot of people don'tstart with a financial
background and they hide frommoney.
They don't want to stare it inthe face and they don't want to
deal with it.
They would prefer they havethese stories they'll tell
themselves about.
I'm not this.
I'm not a finance person, I'mnot an operations person, and if
(44:28):
you decide to be in e-commercein particular is one of the
hardest financial businesses inthe world I think that you have
to decide and tell yourselftoday that you are a finance
person, starting right now.
You are a finance person andhere's the thing you can do.
It Like marketing attributionis more confusing than a P&L.
Like you can figure it out andif you embrace that, you can
(44:53):
actually get a really clearunderstanding about how that
business model works and how youcan make it work for you.
I see so many business ownersthat are even doing like $50
million in revenue at 20% EBITDA, that are broke, that have
never been able to make theirbusiness produce cash for them,
like really like no liquidity atall, and that is the danger of
e-commerce, and so learning howto make it, make you money, put
money in your pocket, is a realskill that you should embrace.
Speaker 2 (45:15):
Absolutely Now.
If people are interested ingetting in touch with you or
getting in touch with CommonThread, what is the best way?
Speaker 3 (45:24):
Commonthreadcocom is our website.
Come there, check us out.
We'd be happy to chat.
And then I'm on X.
There's an amazing D2Ccommunity there if you're into
e-commerce.
I'm at Taylor Holiday on X.
My DMs are open.
No-transcript.
Welcome everyone to the Firing the man podcast, a
show for anyone who wants to betheir own boss.
If you sit in a cubicle everyday and know you are capable of
more, then join us.
This show will help you build abusiness and grow your passive
income streams in just a fewshort hours per day.
And now your hosts, serialentrepreneurs David Shomer and
(00:22):
Ken Wilson entrepreneurs DavidShomer and Ken Wilson.
Speaker 2 (00:32):
Welcome to Firing the man, the podcast for
entrepreneurs, brand buildersand e-commerce operators poised
to move beyond the hustle andinto ownership that scales.
I'm your host, david Shomer,and today's guest is the kind of
founder who transforms hisbackstory into a blueprint for
generational level growth.
Meet Taylor Holliday, the CEOand co-founder of Common Thread
(00:54):
Collective, the e-commercegrowth agency that's earned a
reputation as the CFO's favoritemarketing partner favorite
marketing partner.
He's built his company from asmall office above Blue Frog
Bakery into an influentialfull-service profit agency
focused on Reddit-free,data-driven growth.
Taylor helps brands scaleprofitably with precision, not
(01:18):
guesswork.
Before marketing became hisheadline, taylor played college
baseball at UC Irvine and evenhad a stint with the New York
Yankees, so he knows a thing ortwo about teamwork, pressure and
precision.
Under his leadership, commonThread has pioneered standout
programs like the AdmissionMembership, the D2C Index Data
(01:39):
Tool and the e-commerce playbookpodcast, where Taylor drops
no-nonsense strategy straightfrom the front lines.
Today we're diving beyond thecurtains of ad spend and fluff
into how Taylor engineersscalable systems that boost both
profitability and longevity,feeding your business growth
while preserving vision andculture.
(02:01):
If you're done chasing vanitymetrics and ready for growth,
that pays the rent and then some.
This episode is for you, Taylor.
Very excited to have you on theshow.
Welcome.
Speaker 3 (02:13):
That was impressive, David.
I might need to copy that, andjust so that anytime I get asked
for a bio I could just sendthem that.
So thank you for saving me alot of time.
Speaker 2 (02:22):
Absolutely, absolutely.
So to start things off, can youshare a little bit about your
path in the entrepreneurialworld?
Speaker 3 (02:30):
Yeah, I hate to sound cliche, but in some ways it was
very accidental.
Other than I would say thatbeing an athlete which was my
first life you described is inand of itself a very
entrepreneurial endeavor, in thesense that you are your own
business and your career is justa byproduct of what you're able
to create for yourself.
And especially as you move intothe professional ranks, you
(02:51):
learn very quickly that it movesfrom being a team game to one
of individual success veryquickly, and so there was a lot
about that experience that Ithink shaped me for
entrepreneurship more than I wasconscious of, because I didn't
grow up with that as an ideal.
I never sort of really aspiredto that endeavor, but when I was
released by the Yankees Ithought I was going to go to law
(03:12):
school.
That was kind of the path Ithought I was going to go on.
So I had a year of school tofinish up because I was drafted
as a junior in college and I hada friend that was starting a
business and I needed apart-time gig to pay some bills
and he invited me to come, uh,do the job of printing orders
off the website and taking themto the post office packaging
(03:35):
them up.
I had a little label printer onmy desk and this was one of my
really good friends growing upas a, as a kid, and so it was
really hanging out with myfriends and doing a little bit
of work and getting paid for it.
And all of a sudden, thatcompany exploded in growth and
and so, very accidentally, I wasinside of a growing startup.
Um, and all of a sudden I waslike, oh, this feels a lot like
the locker room, like this is myreally good friends working
(03:55):
towards a common goal.
It didn't feel like work.
There was no nine to five, itwas just.
We were always there.
We were all young and single,and so I kind of became
captivated by what that could be.
And, as that sort of grew, itbecame this question of like,
well, this is like a real jobnow what are you going to do?
And I was like well, I knowmore about this website than
anybody else, so maybe I'll doe-commerce.
(04:15):
And there's this new thingcalled Facebook.
I'll set that up for us, and Iknow some famous people from
when I played back in the day.
I could send them some productsso pretty quickly.
I was in charge of e-commerce,social media and influencer
marketing, and it just sohappened, that's where the world
went, so I got very lucky inthat sense.
Speaker 2 (04:30):
I love it.
I love it.
Now, one thing that stood outto me and I will share with you
I'm a retired CPA, and so thisreally my people my people.
That's right, dude, it's myspreadsheet.
Brothers and sisters, so one ofthe things that Common Thread
Collective does is it comes tomarket as a profit-first growth
(04:53):
agency, and that is puttingprofit before revenue, before
keyword ranking, before a lot ofother metrics that a lot of
agencies like to focus on.
And so can you explain yourrationale there and how you
handle things, maybe a littlebit differently than some other
agencies?
Speaker 3 (05:11):
Yeah, I think this kind of is born out of the fact
that I didn't grow up as aclassical marker.
I was never trained on theappropriate proxy metrics of
marketing.
So when you're a startup who'sbootstrapped whether that's as
the founder or inside of acompany that is that way.
All anybody cares about is howmuch money is in the bank
account.
So I grew up in an environmentand, as a leader, have always
(05:32):
felt that like if you're goingto tell me you're going to go do
something from a marketingstandpoint or anything else, the
measure of success should bedoes the bank account grow?
And that was just sort of thedefault way.
I was sort of raised in thisworld and so I didn't know any
different, and it was seeminglyintuitive to me that if you give
a dollar out, you'd want morethan that back, and so we, from
our very earliest days, alwayssort of were bent to drive
(05:56):
towards marketing tactics thatproduce financial outcomes.
And then I would say, as I grewas a CEO, even in my own
business, I began to understandthat the P&L is the scoreboard,
to stick with my sports metaphor, that that is like actually how
I would define my own successor failure.
And so, as a business, as apartner, I wanted to be able to
impact that scoreboard and to doso, I felt like I needed to
(06:18):
understand it.
I needed to understand thelanguage of finance and
accounting, because it really is, the measure of success of
business is money.
I really believe that, and so Ithink to understand the rules
of the game, to understand thescoreboard and be able to affect
it, allows you to be in theposition of the greatest
influence.
Speaker 2 (06:34):
Absolutely, absolutely.
I have often said when I'vebeen hiring or firing agencies
you don't buy groceries withrevenue, you buy it with net
income, and so I couldn't agreewith you more.
And so I don't know if this.
I've been in the e-commerceindustry for a while and so I
may be jaded by that, but itseems like in this industry,
(06:57):
people are very much focused ontop line, on your revenue, and
when people are flexing onInstagram or Facebook, they're
posting their revenue, not theirnet revenue.
And when people are flexing onInstagram or Facebook, they're
posting their revenue, not theirnet income.
And I've personally experiencedthis, and I've met a lot of
people that seem to sell atbreak-even.
They may have an impressiverevenue number, but at the end
of the day, they're just kind ofrunning on a treadmill and not
(07:21):
going anywhere.
And so what have been somethings that you've seen in terms
of companies that you've workedwith where there has been a
hole in the boat, where they areat breakeven and they need to
make some changes?
Speaker 3 (07:35):
Yeah.
So I'm going to get a littlenerdy here, because I think
there's an important context forwhy I think some of this exists
the way it does.
The business objective that ourindustry pursues is almost
directly correlated to theavailability of capital to fund
the growth.
So, if we look back over thelast five years, we're coming
out of an era of an abundance offree capital, and I mean free
(07:58):
capital in a couple differentways.
One is like equity capital.
There was a period of time let'scall it from beginning of COVID
to 2022, where there was amassive influx of equity capital
into consumer.
They thought it was like goingto be the next big thing.
The world was changing, we werebecoming China, all the things
right.
And then you overlay that withreally cheap debt.
(08:18):
So then you have debt capitalthat is really cheap and easy to
access.
And there was this period oflike, wildly like.
When interest rates at the Fedlevel are low, it pushes out all
the lenders that are built ontop of that further out on the
risk curve.
So they start doing really wildthings like lending,
underwriting your ad account andlending you money at unsecured
(08:43):
on the basis of your Facebookaccount Like this was happening
and there was just so much moneysloshing around compiled with
an abundance of consumer demand,because retail shut down and
there was this only game in town.
And so all of a sudden, in thatmoment, the idea of funding
top-line revenue growth withouta consideration for the net
(09:03):
result on net income or evenfree cash flow is okay, because
you in your head, you're like,well, I could just get more debt
, there's more equity capital orthere's enough demand that
maybe the efficiency is goodenough, and so this behavioral
pattern gets built into that.
But what I watched happen isthat suddenly all of that got
shut off, like, I mean, as fastas it came in, it went out.
There was in our industry.
(09:24):
We went from, in two years,there was $5 billion in venture
capital to the the in 2023,there was less than a hundred
million like funded into ourspace.
So that disappeared.
Interest rates went from alltime lows to really high.
All of those lenders blew up,and so you couldn't get debt,
you couldn't get equity and youhad to self fund your own growth
(09:44):
.
That changes everything ine-commerce when you actually
have to produce not even justnet income.
You have to produce freecashflow that you can use to buy
the next tranche of inventory.
The entire business changes andthat's what we've gone through
over the last really 24 monthsis it's forced everyone to
completely reconsider the gamethey're playing.
Speaker 2 (10:09):
So, dan, there's so many really, really good things
there, and one thing that youtouched on that I'd like to go a
little bit deeper on is fundingthat next tranche of inventory,
and I will share an experiencewith you.
During COVID, I grew a brandfrom about $500,000 to $1.5
million.
People who've never run abusiness would look at me and
say you must be cashflow rich.
However, I've never felt morecashflow poor, and can you
(10:32):
discuss that, that cashflowconversion cycle and how
companies can get in trouble bygrowing?
That's right.
Speaker 3 (10:39):
So I'm going to again , I'm going to stay with me on
those as I walk through thesenumbers and if stop me if I'm
being confusing, because it'shard.
This is somewhat complicated tounderstand.
So the median cash conversioncycle for an eight-figure
e-commerce business is about 90days.
So that means from the day thatyou place a PO to inventory
(11:08):
until you can sell and turn thatback into cash, it's about 90
days, right and so.
So what that means is that youare having to outlay capital and
float it for a very long timebefore you realize that money
back.
Okay, so that, unlike a servicebusiness like I'm in, where
there's basically a directrelationship between the revenue
realization and my cost, it'salmost like I pay my people the
same.
Sometimes I even get the moneyahead of time paying the people.
So I have some.
In some cases I have a negativecash conversion cycle.
(11:28):
E-commerce is incrediblycomplicated because it has this
opposite, and so you have this90 days.
That means you're carrying 90days worth of inventory roughly
on hand about a three-monthperiod in order to support that.
So now imagine you want to grow50% next year.
So let's say you had an awesomeyear.
(11:48):
You just described going from500,000 to 1.5 million.
That's 300% growth.
But let's just imagine you wantto grow 50%, which would still
be incredible.
That means that you have tohave, if you sold a million
dollars worth of product at acost level not at a retail level
a million dollars at a costlevel, you need to go buy 1.5
million with it.
So if your net result of sellingthat million dollars of retail
(12:12):
let's say it's 3 million inretail value, just using some
base, that would be pretty goodgross margin 66% you have to net
50% on that in order to be ableto afford that next tranche of
growth.
And here's the truth is thatthe cost of that revenue from an
advertising standpoint isn'tlikely to produce that kind of
net result.
And so even when you're quoteunquote winning on a P and L
(12:34):
basis, your bank account canactually be going backwards.
And this is this is whye-commerce is so inherently
challenging is because it is avery capital intensive business,
um, business that demands a lotof financing considered in that
process, and then sometimes youjust get the inventory wrong.
It's really hard to forecastthat far out, like there's all
sorts of really difficultchallenges based on the capital
(12:55):
requirements of buying physicalgoods, having them shipped to
you from across the world andthen trying to sell them.
Speaker 2 (13:01):
Absolutely, and that was really well put to people
that are maybe in this situation.
You should rewind and listen tothat again, because that was
really really well put and it'sone of those things that you
almost have to go through tobelieve it and so great
(13:22):
explanation.
So, moving on, your agency hasbuilt some data-driven tools,
like the D2C Index, and so howdo you see technology and
analytics reshaping the waye-commerce founders make
marketing and growth decisions?
Speaker 3 (13:39):
Yeah.
So there's a lot under thebanner of technology and data.
So I'm going to first talkabout the D2C index, then I'm
going to come back to thebroader technology piece of
e-commerce because I think it'simportant.
I think about my job as anagency as providing context to
an individual brand.
So what's sometimes hard abouthaving your own data set is you
(14:00):
never really know what's good.
You're always comparingyourself to yourself.
Is my payroll too high?
Is my profit margin good?
Is our revenue growth okay?
How's our gross margin comparedto the other people in the
category?
Am I getting ripped off by mymanufacturer?
Like?
These are all questions that,in isolation, any individual
data set makes it really hard toanswer.
Well, being an agency, we haveviews into tons of data, right,
(14:22):
and so we wanted to create themost powerful set of context for
the journey that we could toour partners, and so we built
this data co-op across two otheradditional providers.
One is called Veros, which isthe largest free available data
set of aggregate mediaperformance.
A brand called NoCommerce,which does survey data, so
layering in some qualitativedata and then, alongside our own
(14:43):
data set, to be able to provideour partners and the industry
with the best view ofcomparative performance metrics
across the e-commerce stack thatwe could.
This also allows us to do a lotof really cool stuff around
data modeling and trying toprovide a PO view.
On the macro economy, likethere's always a lot of
discussion about is consumerdemand soft?
What's happening to meta CPMs?
(15:04):
Are they rising?
And people are always lookingfor this question Is it a me
problem or is it a marketproblem?
And so oftentimes we try anduse this data set as a tool to
help provide context on thatjourney.
So that's one thing I thinkabout it as an agency's.
One of our broaderresponsibilities is to leverage
the mass amount of data that wehave.
So that's how we do that themass amount of data that we have
.
So that's how we do that.
(15:26):
In regards to technology, wejust got done with the segment
where we're talking about thismargin problem.
That challenges e-commerce isthat you've got gross margin.
That's really hard to get toolow, because you've got to
manufacture a product, you'vegot to ship it a long ways,
you've got to fulfill it to thecustomer.
There's all these obligatorycosts on the cog side, and then
there's what everybody wouldrefer to as, like the Mark
Zuckerberg tax.
We all got to pay Meta to driveour traffic to the website or
(15:47):
Amazon or whoever you're usingto source your demand from, and
the reality is is that the netresult is not very much margin.
The median EBITDA so earningbefore income tax depreciation
or amortization for ane-commerce business of eight
figures is about six and a halfpercent.
That's like that is not veryhigh.
Okay, and so what that means isthat this is a business that
(16:09):
that demands operationalleverage.
It demands on low OPEX.
You have to be able to driveleverage on your fixed costs in
e-commerce.
It is not a big employee basedbusiness.
So what that means is that thebrands that I'm watching today
in particular drive growth andhigher profit than the median
seeing sometimes all the way upto 30% are doing it through two
(16:32):
key ways.
One is they're creating laborleverage through technology, and
that could be in the form of AI.
That could be in the form ofjust using tooling and the
software that's out there tohelp minimize the amount of
employees that you need to runthe business.
There's a lot that you canaccomplish there.
And then the second is thatthey create demand leverage
through some sort of organicaudience.
(16:52):
Usually that could be from,they have a large YouTube
account or they're an influencerwith some base built in.
Those are two ways that thebrands that I see produce.
Really disproportionatelyefficient e-commerce businesses
have to create leveragesomewhere in the P&L.
And there's only so far you cango on the cost of goods side,
because these are real likeatoms out in the world.
You can only compress them somuch in cost.
(17:12):
So that's sort of the way Ithink about technology inside of
an e-commerce business.
Speaker 2 (17:16):
I love it.
The EBITDA margin of 6% isstaggering to me, and especially
Well and think about that whenyou go back to the growth
problem Like you can't.
Speaker 3 (17:25):
That doesn't produce enough cash to fund growth Like
that's, and so you're stagnant.
It's hard.
Speaker 2 (17:29):
Absolutely Well.
So when you've talked a lotabout we've talked about revenue
, we've talked about grossmargin ad spend, leveraging
labor in an organic audience,when you look at a P&L, what KPI
is most important to you?
Speaker 3 (17:48):
So I have a few that I like.
One.
I have this very basicframework that I try and
simplify down, calledfour-quarter accounting.
So one of the easiest ways todissect a P&L and to look at it
and glance and identify aproblem is I would break the P&L
into four categories.
The first would be what I wouldcall cost of delivery, so this
is your product costs and allvariable expenses associated
(18:09):
with getting the product to thecustomer.
So this is your shipping andfulfillment fees.
This is your payment processorfees.
Anything that goes up as ordercount goes up.
Okay, that's like light itemone.
The second then is CAC.
So think about this as variablemarketing expense, your
performance marketing using todrive demand.
So, and then the third is OPEX,is your fixed expenses.
(18:29):
This is payroll, your rent,your software expenses.
And then the fourth category isprofit.
And if you were to use like 25%as the baseline for all of
those, I use this visual whereI'll sort of draw where you're
at in each category and it givesme, at glance, the ability to
sort of then dive deeper intowhy is your OPEX 35% of revenue?
That's not going to work ine-commerce.
Where's the problem here?
(18:50):
Where is the profit being eatenup and then, therefore, where
can we go and try and solve forsome of those challenges eaten
up?
And then, therefore, where canwe go and try and solve for some
of those challenges?
Because the ideal scenario iswe're actually using that
marketing line item to drivegrowth.
So volume of growth.
And so if I have high OPEX andhigh cost of delivery, I'm not
going to be able to fund muchgrowth.
I'm going to be really stagnantthere.
So I've got to solve differentproblems.
So that's one very simple waythat I look at it.
(19:13):
The next would be, if I need asingle metric if you just want
me to do it, it's actually aline item I would encourage
people to put onto their P&L,but most accountants wouldn't do
by default and that'scontribution margin.
So contribution dollars.
So think of this as grossmargin minus ad spend.
That number is the number thatultimately is the value that I
see my business producing on ademand basis.
(19:34):
That then helps me orient whatI can actually afford to do on
the fixed cost side, and sothat's a number.
It's above the line, so tospeak, right before you get to
your fixed costs.
That helps you look at it andit's what we track with all of
our partners on a day in and dayout basis.
Speaker 2 (19:49):
I am not just saying this, that if I had to pick a
single metric, it'd be grossmargin after ad spend, that's
right.
Exactly as you described, andyou take a platform like Amazon
that really is kind of apay-to-play platform.
That's right.
You turn PPC off, your revenuegoes down, and so taking that
into account is huge, and so Iam really glad that you said
(20:12):
that.
The four-quarter accountingI've never thought of it that
way, but I really like it, andso I'm curious, when you're
working with companies, whichsection tends to be an area
where they need to focus on?
Is it OPEX?
Is it COGS?
Where is it?
That's a great question.
Speaker 3 (20:29):
So, generally speaking, what happens is
somebody comes to me and says weneed I was literally having
this conversation yesterday weneed a five to one ROAS in order
to make money, and right away alight bulb is going off in my
head.
That's like wait a second,that's like a 95th percentile
outcome, cause I have acontextual data set that tells
me like that means you wouldhave to be one of the best
(20:51):
advertisers in the world inorder to accomplish that result.
What is true that makes youbelieve you need to drive that
kind of demand?
And so then when I go and lookand I look at the cost of
delivery, and then I look attheir OPEX and what they're
trying to solve for in theirhead is they've got a bloated
OPEX, and so they're like oh, inorder to maintain all these
(21:11):
people that I have on staff, Ihave to then produce marketing
that is disproportionatelyefficient.
But the problem there is notactually a marketing problem,
it's an OPEX problem.
You have too much staff for thesize of your business, and if
you were to drive that down,then we could actually probably
maximize contribution dollars atsomething closer to a three to
one or 2.8 to one, and so now wewent from obligating ourselves
(21:32):
to creating a 95th percentileadvert and and this is why, like
, a lot of people have like aconstant churn of marketers or
agencies is because they're like, well, nobody could produce
this result, and it's like, yeah, because that's a result that
is like so disproportionaterelative to the expectation that
, of course, people are failingat it constantly, and so if we
could drive that down actuallyand actually get to a place
where we're producing a 75thpercentile outcome or something
(21:54):
like that, and you're stillmaking money now, the business
can grow.
So oftentimes I see this likethere's this conflation between
what is impeding our growthbeing marketing efficiency
versus oh wait, you're actuallylike, really wasteful in your
fulfillment expense, yourshipping costs are way too high,
or, hey, your return rate hasactually gone from 6% to 12% and
(22:15):
we've lost a ton of money, andso we need to solve that problem
.
It's a product problem, not amarketing problem.
You know, there's those kindsof things that we discover all
the time.
Speaker 2 (22:25):
I love it.
I'm really nerding out rightnow.
I really, really enjoy this andit's bringing to light a
different perspective and I'dlike to go a little deeper here.
So, because you have the D2Cindex, because you're working
with multiple successfule-commerce companies, what are
(22:45):
some of the characteristics ofthe winners?
And that may be price point,that may be the markets that
they're selling in, maybe it'show they're driving customers.
But of the winners, do you seeany common threads?
Speaker 3 (22:58):
So we have something that we do called your GQ score
growth quotient score wherewe'll put together a set of
initial attributes to determineyour growth potential, and then
we index those against all theclients we have, and we have the
subset of brands that we callduckweed brands.
So a duckweed brand duckweed isthe fastest growing plant on
earth, and the reason it growsso fast is because it can grow
(23:20):
at night.
It doesn't actually requirephotosynthesis to grow.
It's like weird in its geneticmakeup, and so it grows faster
than every other plant.
And so the idea is these arebrands that can grow in any
environment.
They will grow fast, whetherit's a bad economy, a good
economy or whatever, and sothat's the metaphor we use for
these, this characteristic setof brands, and I'm going to give
you some examples.
So I talked about the idea thatyou have to have leverage
(23:43):
somewhere in your P&L, so someattribute that gives you the
opportunity to be more effectivethan everybody else, and so
there's a few places I see thisshow up.
I mentioned one of them, soI'll just repeat it quickly is
that you have organic revenuethat does not require you to pay
for the realization of it, andusually this is because you're
an influencer with a hugeexisting audience.
(24:03):
Influencer-led brands have animmediate leverage on the P&L.
They don't have to pay the CACprice that we all do to go drive
Facebook ads.
They can drive it off of theirexisting audience in a way that
gives them a massive immediateleverage point.
So that's a thing that I see alot.
Two is you have greater than a100% increase in lifetime value
within one year.
So if someone pays you $100 onfirst order, that customer has
(24:26):
become worth $200 in one year.
So this is often why you seesubscription brands in the
supplement space do really wellon e-commerce Because they
generally capture a lot ofincremental value over time off
of one customer.
So they can be at a slight lossor even break even on a CAC
basis and then it can still makea ton of money.
(24:47):
So they have a higher return oninvested capital because they
are able to increase the valueof that customer substantially
over time.
That is.
You'll see this attribute inapparel brands, you'll see it in
subscription brands, not inhard goods, right?
That's why that category tendsto be really challenging.
So that's a second commonattribute.
The third would be you have, forwhatever reason, created some
(25:07):
leverage in your supply chain,and that could be because you
have a manufacturing partnershipthat allows you to have a
negative cash conversion cycleor some way that the terms have
been deferred in a way, orthere's some relational equity
where you can fund growthcheaper than everybody else.
It's a leverage point thatdoesn't guarantee demand, but it
is something that I see thatbrands who have this are able to
take more risk on the productside, because net new product
(25:28):
creation is often a driver fordemand creation, and so by
offsetting that risk of tryingsomething new, a new skew, a new
color, a new whatever youactually create leverage in the
marketing side through yoursupply chain.
The best example I've ever seenof this is a company called
ColourPop that sells makeup, andif you think about a category
(25:50):
like that, it's so trend basedRight.
So trend-based right.
There's something new happeningall the time that if you have a
really long supply chain, it'sreally hard to get in that game
and like predict ahead of timewhat's going to be cool four
months from now.
And so what they have is inOxnard, california, a giant
manufacturing facility wherethey do their supply out of.
It's not their primarymanufacturer, but what they've
built inside of their warehouseis basically a lab that could
(26:14):
spin up 200 SKUs of anythingreally fast, and so the way that
they offset their productionrisk is they are able to build
really small batch runproduction to test the demand
for something, something new,really, really fast, and so
that's sort of a way ofinverting that inventory risk
that often for new products islimited because you don't know
(26:36):
the demand yet, and so you'reguessing do I order a thousand?
Do I order a million?
How many are going to be there?
And that's going back toearlier conference.
That's how you die, right, andso creating leverage in your
supply chain is another way.
So I'll stop there, because Icould.
I could go on with some more,but those are a few that I see
all the time.
Speaker 2 (26:50):
I know I think those are three really really, really
good ones, and so let's look atthe opposite side of that.
What are some of the commonthreads of the losers?
The people that are not goingto scale beyond where they're at
or will go out of business.
Speaker 3 (27:06):
So a bad combination is a single purchase item, so
usually a hard good.
Think about this like if I wasselling an individual hairbrush.
Okay, a hairbrush is a low AOV,mediocre margin, with no
recurring purchases.
That combination of attributesis almost impossible to sell
through your own demand creationvehicle like your own website.
(27:29):
A lot of times you'll see thatsort of commodity set of goods
end up on Amazon where they'rejust trying to siphon demand
capture.
They're just trying to putthemselves into the search
volume for combs and not pay forany of the demand creation.
But it's ultimately socompetitive there's no barrier
to entry and ultimately all theprofits sort of get competed
down to nothing, right?
And so any hard good thatdoesn't have great LTV has
(27:52):
mediocre AOV and no LTV is areally hard e-commerce business.
It's really really challenging.
And then you could sort oflayer on additional things
related to TAM, like how manycustomers are there potentially,
and then ultimately like anunderappreciated thing in our
business is actually IPs, likewhat's the moat?
One of the things that'sfascinating to watch is how
(28:13):
perfect a capitalistic systemconsumer product is, and if you
want an illustration of this, goback and look what happened
when mask demand went throughthe roof.
The day before masks were amandate in the United States,
there was somebody that had anorganic SEO listing that was
making probably a nice littlebit of money and then suddenly,
overnight the demand outpacedthe supply massively and for a
(28:34):
very short moment in time thatperson was making was absolutely
printing cash.
But how fast those things comeback into right relationship, in
other words, how fast thesupply ramps up to meet demand
in our industry, especially in aproduct with no barrier to
entry on a production standpointthat's really cheap, is
unbelievable to watch.
It is so fast.
How quickly the profits willall get competed down to the
(28:57):
very last penny of price.
Amazon's a great illustrationof this.
One of the businesses that webuilt prior to my agency was a
company called Kalo.
We sold silicone wedding rings,so silicone wedding rings.
When we started, we were theonly one person selling the
product.
Now what's beautiful about thisproduct is it costs about a
nickel to make a siliconewedding ring and we could sell
it for 20 bucks.
So you want to talk aboutleveraging the P&L gross margin
(29:18):
through the roof.
But but while that sounds like afeature, the problem with it is
it's indefensible and leads toendless competition.
That means there's endless roomfor somebody to make money at
$18 and then at $15, and then at$10, and then at $9 and then at
$8.
And now, if you go look onamazon, remember when I started
this business there were zeropeople selling this product.
(29:38):
If you go look on amazon rightnow for silicone wedding rings,
there are thousands of listingsand people selling 10 of them
for two dollars.
All the profits get competeddown to zero because it's
indefensible, and so that's whatyou watch play out in almost
all of these product categoriesover time is that without some
moat, without some leveragepoint, all of it just gets
competed down to nothing.
Speaker 2 (30:00):
You talked I really like that point about the supply
and demand and how thecapitalistic society always
reaches equilibrium, and this issomething I've definitely
experienced.
For keywords.
Speaker 3 (30:13):
Exactly Search is a perfect example.
Speaker 2 (30:14):
Yes, that comb that say there's $10 of profit margin
, your keywords for that the bidwill be 50 cents at a 10%
conversion, and so I'm not sure,if my math's right, you end up
at breakeven and the supply anddemand and that really, really
(30:34):
tends to kill it.
Speaker 3 (30:36):
So this is why Google is the most billion dollar
business in the world is becauseit's literally a system
designed to do exactly that Isthat everyone will pay one cent
more for the click until they'reno longer making money, and so
what it does is it extracts allthe profits to them over time.
All the profits accrue to theunderlying auction-based ad
(30:58):
systems over time.
This is why the winner ofe-commerce is Google and Meta is
because what happens is, everyday, somebody looks at the
options in the auction and goesam I willing to pay a little bit
more, a little bit more, alittle bit more, a little bit
more to win the purchase, andinevitably, somebody is willing
to do it at a loss, which drivesall the profit out of the
category.
And so this is why, like, theunderlying digital real estate
(31:21):
of the internet is the SERP pageof Google, it's the SERP page
of Amazon and it's the feed ofInstagram Like, and in those
environments, they are perfectlydesigned to extract all the
profits to the ad engine.
That's the literal underlyingdesign of the system.
Speaker 2 (31:34):
So, knowing that, knowing that let's build out the
ideal marketing department,knowing that we can't lean fully
on ad spend or pay-per-clickadvertising, what would be, you
know, in that marketingdepartment, what would be the
components of it and how wouldyou allocate your costs?
Speaker 3 (31:54):
So I think that this really depends on the product
category that I'm in.
So I want us to narrow thequestion a little bit, and the
reason is is the primaryquestion I have to ask is is
most of my revenue going to comefrom new customer acquisition
or is it going to come from in,like the value of the existing
customers that I have?
So, really, is it asubscription business or is it a
(32:16):
single purchase business?
So I'll give you two marketexamples.
Like Ridge Wallets is abusiness that everybody loves in
the e-commerce space.
They talk about Sean's awesomeon Twitter.
If you don't follow him, thatis a new customer acquisition
engine.
They a hard wallet.
I'm buying one of those for mywhole life, like I don't need to
constantly repurchase, and soif you are interested in a new
(32:36):
customer acquisition engine typebusiness, go look at what
they've built.
There's two primary things thatare at the center of that.
One is a paid acquisition teamthat are killers.
The person who lead that teamcame from CTC.
I know him well.
His name's Jim.
He's awesome.
They are amazing at paid social.
They are amazing at search.
They are amazing at paid media.
They know how to create contentusually short form, vertical
(32:57):
video for that format to drivethat demand.
And then the second thing theyhave is new product development.
Is they recognize thateventually you have to launch
rings and then luggage and thenother things, because the wallet
business isn't going to growforever, and so those become the
core skills paid acquisitionand product development.
Now juxtapose that with acustomer of ours.
Like we work for the businesscalled Carnivore Snacks for a
(33:19):
long time, they have one product, it is meat chips, dehydrated
meat chips, and it issubscription.
And the bulk of the revenuetoday 85% to 90% of it comes
from the existing customer base,and so it is all about curating
the experience and the ongoingrelationship with people that
are already in your business.
That leads to an organizationthat's more focused on retention
(33:41):
, that's more email and SMSbased.
That's building community andrelationship.
So you'll end up with differentorganization relative to how
you monetize the customer side.
Speaker 2 (33:52):
I love it.
I love it and I do think it isdefinitely appropriate to break
it out into.
Are we acquiring first timecustomers or looking at repeat
customers?
And that's something that youshould be thinking about to all
of our listeners.
Speaker 3 (34:05):
Now, when you start, it's always new right.
So to start, it's always goingto be a new customer acquisition
, but I think having an eye forwhat kind of business am I
building long-term will getthere.
And then I think the otherthing is what kind of gross
margin do I have?
Am I going to be able to fundthis organically or with paid?
That would be the secondtranche is that if I have to
have new customer acquisition,am I going to be able to do this
(34:27):
through paid media and thatusually means I have high gross
margin or am I going to have tobuild an organic demand engine,
and in which case those wouldlead me to different paths as
well relative to the state of mybusiness?
Speaker 2 (34:46):
Okay, you've talked a little bit about influencer
marketing and how that may be agreat place to put some
resources, and I think one thingthat attracts some people not
all, but some people toe-commerce is it is kind of a
nameless and facelesstransaction.
Faceless transaction, and sooftentimes I find that, like
really good e-commerce operatorsare not people that are going
to get in front of a phone,record a selfie and talk about
the new product that they'relaunching.
(35:07):
And so for those types ofbrands and speaking to those
operators who don't have anorganic audience, who've tried
social media but isn't reallygood at it, what are some ways
that they can leverage thefollowing and influence of
others to get the same results?
Speaker 3 (35:26):
Yeah, so I think that if we just sort of break down,
the challenge here is thequestion is how do you access
audience at a price cheaper thanyour competition?
This is like a very simplequestion, right?
And if we both are going tomarket and paying full freight
for it on Meta, I have noleverage over my competition.
So the question is how couldyou?
(35:48):
Potentially?
Now I'll give you an example ofhow we did this in the very
early days of Kalo, so Kalo,silicone wedding rings.
One of the core use cases thatwe found was that there was
these certain sets ofprofessions that had to take off
their ring when they went towork.
Okay, because it was a safetyissue.
They would literally suffer forsomething called ring avulsion,
which think about getting yourmetal ring caught on an assembly
(36:11):
line and having it ripped off.
Like don't Google that, becauseit's disgusting, it's a real
thing.
So, and one of those is, uh,firefighters.
Okay, so you could imagine, um,firefighters are dealing with
all sorts of grabbing thingswith their hands moving very
quickly and they don't wearmetal wedding rings.
It's a, it's a safety risk totheir job.
We found, okay, so we have avery clear problem use case um,
(36:34):
it also is an industry thatsuffers from one of the highest
divorce rates in the world.
Um, very high stress.
So you have this communitythat's been built.
We found this woman called ran ablog called firefighter wives.
Okay, um, so right now we're abrand new business.
We have no relational equity ortrust or access to the
firefighter community, so wecould go advertise on meta to
(36:57):
firefighters and we would dothat, and that's not to say that
that couldn't be valuable.
But here was someone,firefighter wife, who had a
community of marriedfirefighters, who had our
problem and had our audience andwas a not a huge blog, but we
were able to build an affiliatebased relationship with her
where she would talk about theproduct she would promote it.
(37:17):
Where she would talk about theproduct she would promote it.
She'd talk about how herhusband can wear a ring on the
job for the very first time andshare it directly to a set of
customers at zero upfront costto us, zero initial risk.
And by accessing that audiencewe built one of the first
foundational pipelines ofcustomers for the business and
we built content and use caseand other stuff that we could
(37:40):
parlay into more effectiveadvertising.
But that's an example of likesort of a micro influencer that
owned our audience, hadauthority with them and could
help us to access it at a pricethat was $0 upfront right.
It would only only paid her inthe event that there was a sale
driven.
And so again, invert that cashconversion cycle we got our
revenue, then we paid her, notthe other way around With Meta
(38:01):
you got to pay them and then youhope you get your revenue in
return.
Speaker 2 (38:05):
I really like that and I'd like to dive into the
economics of the commissions ofthe affiliates that you're
paying out.
So say, you have a brand whosepost PPC gross margin is 30%,
and in this case there'sactually not PPC, right?
Right, if we're, just how muchof that margin would you be
willing to give away, and whattends to move the needle?
Speaker 3 (38:30):
So I think that the question there is if we
translate the percentage intodollars, you're going to get a
helpful directive on the answer.
So, in other words, if I'mselling actual engagement rings
that are $1,500, giving someone10% of that is $150 every time
they generate a sale.
If I'm selling a $20 weddingring and I'm giving away 10%,
(38:53):
it's $2.
Well, what's the incentive forthe person to work?
So, rather than the, I wouldtake a step back and I would try
and think about what wouldincentivize this human to work
for you, like, what would makethem want to go work hard to
drive it in a way that stillproduces a monetary outcome for
you.
So that's a question of howmuch volume do I think that they
can produce?
What am I willing to do for theinitial margin?
(39:15):
What's my cash position?
What's my LTV Like?
There's all these parts of thatquestion, but the key is you
want it to be valuable to them.
It's the same thing, like Itell people when they hire me is
that one of the mistakes peoplemake when they negotiate with
an agency is that they, likethey want to grind them down to
the lowest possible price.
And I just say, like it isactually counter to your
(39:35):
incentive to not be valuable tome.
If you are not valuable to me,you will not get my best and
brightest and our tension andenergy of the organization.
I would say the same thing withaffiliates.
You want to be the mostvaluable partner you can to the
most powerful affiliate thatexists.
Now you obviously want to dothat.
You don't want to do that at aloss.
You want to make money but youwant people to work hard for you
and to do that be valuable tothem.
Speaker 2 (39:57):
That's a really really good answer.
Speaker 3 (40:07):
I was thinking you were going to give me a flat
number.
Speaker 2 (40:08):
Sorry, no, no, no, Rarely going to get the short
path.
For me that's really reallygood and the price point on $150
item versus $20 item totallydifferent, and so, yeah, that is
really really good.
Can you talk more about CommonThread Collective?
What types of brands do youwork with?
Speaker 3 (40:25):
Yeah, so we work with what we call the early and
mid-market consumer e-com.
So if you sell something on theinternet and you're between
zero and a hundred million,that's our sweet spot is that we
don't work with the enterprise,we work with the little guy.
Our goal is to sort of bringenterprise level tooling to the
early stage e-commerce businessowner and help them grow
predictably and profitably.
So that's that's our sweet spot.
(40:46):
We don't work in B2B.
We don't help you sell airconditioning or services.
But if you're selling somethingon the Internet and you're in
sort of that early to mid marketstage, we want to help.
Speaker 2 (41:00):
What kind of problems do you often have clients
showing up with that you're?
Speaker 3 (41:02):
helping them solve those problems.
So our sweet spot is helpingbrands connect marketing and
finance, as we've talked about.
You probably get that sensethrough this episode is that
we're unique and that we do FP&Afor all of our customers.
So if you want to build a greatfinancial forecast that
connects to your marketingcalendar, that allows you to see
every day what the expectationof your marketing team is and
how it ladders up to the overallfinancial goal of your business
, that's the system that we'vedesigned.
(41:23):
We've designed something calledthe profit system, which is a
way of working for brands thatbrings those things together so
that operators can be reallyconfident that the work that our
team is doing is drivingtowards the financial outcome
that they care about.
Speaker 2 (41:34):
I love it.
I love it.
I will mention to the audienceover the years I've probably
hired and fired 15 to 20agencies.
Oftentimes, the common reasonis profitability.
When I'm running a business, Iwant to put a dollar into the
machine and get $1.20, $1.30back, and so, yeah, I love that
(41:55):
you're profit first and yeah,that's absolutely great.
So, to wrap things up, we havesomething called the fire round.
It's four questions.
We ask everybody at the end ofthe interview you ready, let's
do it?
All right, what's?
Speaker 3 (42:09):
your favorite book?
It's this one right here.
It's called the Carrot Seed.
It's a kid's book and I thinkit's the best book on
entrepreneurship ever written.
Speaker 2 (42:19):
Outstanding.
I'll add that to my.
I've got a five, three and oneyear old, so oh perfect, Get
them started early Awesome.
What are your hobbies?
Speaker 3 (42:28):
I coach my kids.
I have twin boys that are 11and a daughter that's eight, and
it is my current joy to figureout and learn how to be a coach.
It is so different than being aplayer.
I was not good at it when Istarted and I'm trying really
hard to be good at it, but, man,this feels like just such a
precious time of life with them.
I can feel them moving awayfrom me towards their friends.
(42:48):
I feel like I have this verynarrow window that I'm never
going to get back the rest of mylife, and so so much of my mind
and energy is occupied by thatchallenge outside of my
day-to-day work.
Speaker 2 (42:58):
That's outstanding.
What is one thing you do notmiss about working for the man?
Speaker 3 (43:03):
You know it's funny.
I don't know that I ever had anexperience that I would call
too much working for the manbecause, again, the closest
example was probably, honestly,the New York Yankees.
Felt very corporate to me,oddly enough, and there was a
lot I learned about that process.
Learning what it meant to beinside of a business that cared
about money was a lot I learnedabout that process, learning
what it meant to be inside of abusiness that cared about money.
But I have always greatlyappreciated the freedom I have
(43:25):
to take ownership andresponsibility for all my
problems and outcomes, andthere's something really
empowering about that that Idon't ever feel that I'm stuck.
I feel like I make mistakes andI screw things up, but at the
end of the day, I have immenseautonomy to change it, and if
something doesn't work or Idon't like my life, I get to
decide to change it.
If my wife needs me to pick upthe kids at three, or if I have
(43:46):
to stay home with them, I get todo that, and so that level of
control is really empowering andI think that it gives me a good
sense of responsibility for thelife I want.
Speaker 2 (44:01):
Love it.
And final question what do youthink sets apart successful
e-commerce entrepreneurs fromthose who give up, fail or never
get started?
Speaker 3 (44:07):
Yeah, man, such a great question.
I think a lot of people don'tstart with a financial
background and they hide frommoney.
They don't want to stare it inthe face and they don't want to
deal with it.
They would prefer they havethese stories they'll tell
themselves about.
I'm not this.
I'm not a finance person, I'mnot an operations person, and if
(44:28):
you decide to be in e-commercein particular is one of the
hardest financial businesses inthe world I think that you have
to decide and tell yourselftoday that you are a finance
person, starting right now.
You are a finance person andhere's the thing you can do.
It Like marketing attributionis more confusing than a P&L.
Like you can figure it out andif you embrace that, you can
(44:53):
actually get a really clearunderstanding about how that
business model works and how youcan make it work for you.
I see so many business ownersthat are even doing like $50
million in revenue at 20% EBITDA, that are broke, that have
never been able to make theirbusiness produce cash for them,
like really like no liquidity atall, and that is the danger of
e-commerce, and so learning howto make it, make you money, put
money in your pocket, is a realskill that you should embrace.
Speaker 2 (45:15):
Absolutely Now.
If people are interested ingetting in touch with you or
getting in touch with CommonThread, what is the best way?
Speaker 3 (45:24):
Commonthreadcocom is our website.
Come there, check us out.
We'd be happy to chat.
And then I'm on X.
There's an amazing D2Ccommunity there if you're into
e-commerce.
I'm at Taylor Holiday on X.
My DMs are open.
No-transcript.
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