This Cash Flow Mistake is Killing Your Business...

This Cash Flow Mistake is Killing Your Business... Speaker 1: Earlier in the summer, we started popping off where they aren't on DTC. Because of that, we decided to invest a lot into inventory. You have a lot of cash coming in, you're hoping that it's going to continue like that, so you bring in a lot of inventory. When it comes to making decisions around DTC, while there's obviously some level of unpredictability with respect to how the algorithm is going to go, You have the power to kind of make the decisions how things are gonna go. But with something like a very significant partner like say Walmart on Wholesale, you go in there, you're excited to get in, and then you're like, okay, well, how much are we gonna sell? And they're like, this is what we project for the next six quarters. But then if it doesn't work out, then you're stuck in this weird situation where you've over indexed on the inventory side. You might have special SKUs for a particular wholesaler or at a minimum, they're just packaged differently. And your cash balance still looks good but part of that is because you've just done a great job of negotiating with your vendors so that you're able to kind of extend a lot of those payables and kind of kick it out over some amount of time. But the thing that I guess maybe to a certain extent we didn't always pay enough attention to was... Speaker 2: Welcome back to another episode of Chew on This. Today's a special episode where we're going to be covering the cash flow mistake that could be killing your business. And we have a special episode brought to you by UpCounting. And we actually have the founder of UpCounting, which is not only a lot of DTC brands' favorite CFO and accounting agency to use, but it's also Obvi's. So today we have Abir, who's the founder of UpCounting, gonna be sharing a lot of the secrets and a lot of the things that you need to be watching out for, especially when it comes to growing your DTC business in today's climate. So without further ado, first of all, Abir, thank you so much for spending time Coming out here from Canada and gracing us with all the knowledge you're about to drop on us. But for the few people who may not know you or haven't caught you on Twitter yet, tell them a little bit about your background and why you're someone that we should be listening to. Speaker 1: Yeah, absolutely. I mean, thank you very much for having me. In terms of my background, I'm a CPA. I was a VP Finance at a fairly well-funded startup. I helped them raise about 60 million dollars. But what has really kind of given me the perspective with respect to eCommerce that's been valued, I guess, by a lot of people While I was there, we acquired an eCommerce brand and for various HR reasons, I suppose, they didn't quite bring in the team that was necessary to run it. So I essentially just offered to take over and kind of hold the fort down until we hire people. I didn't know anything about eCommerce at the time, but just kind of fell in love with it. And I went like really deep. I was sending the emails on Klaviyo, I was updating the liquid code on Shopify, answering tickets on Zendesk. Eventually, we hired some people. They didn't work out, so went even deeper. Started running the agencies, then fired the agencies, started doing SEO, Facebook ads, influencer marketing, everything myself. So, got to learn a lot about it, but also really just fell in love with the eCom world. So, then when I had to leave the company for some family reasons, found that as an opportunity to build a company that could focus on supporting eCommerce brands, because I realized that there was definitely this, on the one hand, just more opportunity to play with eCom, which made me happy, but there was this opportunity from the perspective of the fact that there were not a lot of accountants or firms that focus on eCommerce specifically. And the needs of eCom brands, I think, are somewhat unique compared to a lot of the other industries in a sense that if they don't have people who understand their business very well, then they aren't getting the support they need. And that was kind of why I decided to focus on that. Speaker 2: That's awesome. And I think one part that's always been really cool to be able to work with you on from a CFO angle but also just from like a guidance angle, you're not just somebody that's looking at it from a P&L, balance sheet, cash flow statement. You're actually understanding the macro environment. You're understanding why certain things could be happening. Which is, I think it's refreshing for us to come to a call and be like, well, you understand what's going on, right? And versus I think traditionally it's been so much of like, you know, this ancient system and ancient people on the other side that are not really willing to step their toes into understanding the economics and all the different pieces that happen in the DTC space, which you can see it. It changes literally overnight sometimes. I think one place to jump in, which has been something that I know Big focus at Obvi as well as something that I think you've helped tailored for us is when you look at all these channel strategies, you look at how you're treating meta, you look at how you're treating TikTok nowadays, you look at even just how you're treating B2B versus D2C, I think you've always talked about treating each channel almost like a business, right? Tell us a little bit more about that and how in theory should you go about this if you're a business watching? Speaker 1: Yeah, absolutely. So from my vantage point, I like to phrase it that way because I think it just helps give people a little bit more perspective about how different the fundamentals of each one of those channels are and how they should treat it. Obviously, it's the same team for the most part. It's the same product, the same brand, but there are aspects about how those businesses are run that when you've been focused and if you're a DTC native, you've been focusing on that for a long time and then all of a sudden you expand into wholesale. It's not just like another revenue stream. It's not like I just turned on TikTok shop. I'm running a couple ads there too, and I'm getting a bit more revenue. It's fundamentally a very different business. So the parts that a lot of people are kind of relatively aware of is, for example, from an acquisition perspective, the way that you approach acquisition for DTC is very different in terms of how you run the ads, how you have the customer data as opposed to wholesale, the fact that you have the opportunity for a lot more retention on direct-to-consumer versus wholesale where it's Basically kind of outside your control entirely. And obviously the margins. People know that obviously you have lower margins on wholesale. Cool. That's good. Like I was talking to a brand last week, they're doing in the area of like four to five million a month, so fairly substantial in terms of size, but I was looking at their P&L and even that, it's like just all the channels are bundled together into one view. And on the one hand, they know that it's kind of things that you should look at separate, but there is something to be said about the fact that even if you have the data, how you organize it, how you present it and how you interpret it makes it easier because it's not necessarily intuitive that these different channels behave very differently. So when it comes to say, DTC versus wholesale in particular, One aspect that's very significant is with respect to the cost profile. The beauty of DTC and one of the reasons I love it is you can run it very lean. You can have a lot of variable costs. You can keep your fixed costs super low. You can ride the waves of Facebook ads up and down. So if things are going well, you can spend it more. If it's going not that well, you can scale down contractors, agencies, whatever. But with wholesale, oftentimes you need to have an entire team dedicated to just sales or full-time people. There's a lot of investment that you have to make in that before you even start reaping the rewards. There's a cash conversion cycle to it. So the fact that, you know, you receive your inventory, you put it on the website, set it live, Shopify pays you the next day, you worry about paying your ads 45 days later. But in wholesale, you have to worry about moving it from your 3PL to the distributor, then it gets into the store, then they pay you 45 days later. So it's a very, very different Profile from a cash conversion cycle perspective, which requires an entirely different set of networking or networking capital considerations. Again, if you're not necessarily aware of that, you're not accustomed, you're not thinking about it, all of a sudden it comes as a little bit of a Culture shock, if you will, because you're not used to operating the business that way. There's also the fact that the time to ROI is a lot longer. So on DTC, if you need to scale up your ads, you start working with a new creative agency, you get your new creative, you start testing it. If it works out well, you get your ROI on that within a month. Like you've already seen your scale, you know, your ads scale up. On the wholesale side, your team might be hitting the pavement, going to conferences for six, 12 months before you actually even get a PO from a vendor. It's a very, very significant amount of time where you're investing, investing, investing before you start reaping any sorts of rewards, let alone breaking even. So just those fundamentals being so different between those two channels, it's a very different way to approach business. And when you've been doing DTC for four years and that's what you're used to, and some founders, they don't necessarily appreciate those differences. They go into wholesale. It's like, oh, it's just a More money, lower margin, I get it, but it's more money. But then if you're not prepared for that, you're not forecasting for what kind of an impact that'll have on you, it can be very, yeah, it can be a shock. Speaker 2: What's kind of the best practice in your mind when you're looking at Amazon versus B2B versus DTC? Have you seen something that's like core to the actual setup or the administrative piece of this? Because I think sometimes in theory a lot of this makes sense, but then people go and either work on it with their accounting team or they're trying to fish through it themselves and it's like, well, how do I separate some of these things or How do I marry this cost to this revenue channel? What's kind of some of the maybe the simpler practices that you think are important out of the gate? Speaker 1: No, for sure. I think in a perfect world you could segregate every single cost into exactly where it's real value, but obviously there's something to be said about the administrative burden just like where the pragmatic benefits of it end. But to my mind where I like to do it and kind of how I break it down for you guys is you obviously separate out the revenue, separate out the cogs like that's at a minimum. But then insofar as you can start allocating a lot of the variable costs as well, that can be quite helpful. So on the wholesale side, that'll be things like your commissions, broker fees, trade fees, trade spend, all that stuff. And on the DTC side, obviously, shipping, merchant transaction fees, and of course, ad spend. But if you're able to do that, then you're able to, at the very least, understand, okay, now I have this segmentation between where my contribution margin is coming from, from a channel perspective, and what are the things that, which channels are actually allowing me to cover my fixed costs to keep me afloat. There's more depth to it, of course, because the contribution margin, what can be a little misleading, is if you're getting $400K from DTC and $400K from wholesale, $400K from DTC is going to hit your pocket pretty fast. That's going to be in your bank account. That wholesale $400K, that's going to take a little bit of time. It's not quite as valuable as $400K from DTC. It's still having more breakdown can be beneficial in that way. And if you can allocate some of the fixed costs, like I'd say personnel is a good one just because you have a team that's fairly dedicated to wholesale that doesn't really do that much for DTC, so to speak, it can be helpful. But I was talking to a friend the other day and he was talking about if we want to do that sort of breakdown, I know that the ads that I run on DTC also help my Amazon channel and my wholesale. I'm like, yeah, you have that halo effect. But like, do you really want to go to that extent to be like, okay, well, 70% of my ads I'll keep here, but 30% of the value of my ads I'll allocate here. Speaker 2: Some of it just feels like a feel good. Speaker 1: Exactly. You're just trying to make DTC look better, right? Speaker 2: No, that's it, bro. Do you have any comments for me to add on just like how we've gone from before when we were with UpCounting to like how we've actually gotten down to like actually being able to look at our division really. Speaker 3: Yeah, I mean just before it, we weren't breaking it out by channel like that. And now it's like even when me and you had a conversation the other day, I was able to just tell you like, okay, moving forward, this is what our DTC channel profit is going to look like month over month. B2B is going to look like this. Amazon is going to look like this. And how they both contribute to the overhead that we're doing, right? So we're just not being able to do that before. You're not able to just be able to like come up with the strategies on the marketing side, right? Like when Ash is telling me like, hey, do we have a budget to start testing things? When maybe we're already not getting the best contribution margin, it's like, okay, I can tell you where Amazon and B2B are gonna land up, so you now know, okay, you have this much more to spend, even though he might not have seen that in his purview on the DTC side. Speaker 1: Exactly, yeah, and you can have those opportunities where one channel can subsidize the growth of another one strategically, so having that breakdown helps. Speaker 2: I want to talk through, because you brought up perceivables, and I feel like this is something that like, People have just looked at it as like a accounting bucket and they don't really understand the impact of it. And I think we didn't either because I think you've caught a couple of bigger mistakes that we've made and helping us track down certain receivables and whatnot. But you kind of hinted at it, which is like 400K from B2B versus 400K from DTC are two totally different impacts to the business. And I think when people look at that, when they look at it on paper, It's like, oh, well, we did 800,000. Yeah, great. But then the impact of that on the day-to-day business and then tracking down receivables and then, you know, if something is due but doesn't get paid in time, how does that affect things? Maybe if you want to either explain a couple of nightmare scenarios or certain things you've seen, whether it's from us or other brands, I think it'd be really good for I think people to Understand this part of their P&L and balance sheet a little bit better because I think what's on paper isn't also what just translates to day-to-day abilities in a business. Speaker 1: No, that's a very good point because With wholesale, it's the fact that, okay, so obviously the cash is delayed to a certain extent just because of the nature of the receivable process, but a lot of times people don't necessarily appreciate just how much of an administrative burden goes into even just collecting that cash. With Shopify, you don't have an issue, right? A person swipes their credit card, it's gonna get paid out, you're good. On the wholesale side, you need like a whole team of people showing up and knocking on people's doors like, oh, where's my money? There's a lot of work that goes into it. So at a minimum, like, Best case scenario, if you're running a Shopify wholesale, again, people just swipe their credit cards and they just buy it at wholesale prices. That's still relatively good. When you start going to net 30, what I've seen oftentimes happen with brands, again, slowly expanding it to wholesale so they don't really have the experience with it, they go into it and they're like, okay, well, yeah, sure, I'm issuing invoices. It's net 30, but they'll pay. They'll just take 30 days. Except people don't pay. People take their time to pay if they can get away with it. So now you need people who are actually going to be paying attention to the receivables and following up with them and harassing them. And then it can be a little bit more complicated when you work with some of those big channels like a Walmart or anybody who has like complex EDI issues where now all of a sudden the administrative burden of even issuing invoices, it's not like I just set it up in QBO and click send. Like now I have to set it up in their platform. I have to set it up perfectly or else it doesn't get accepted and then you run into issues there. So kind of one of the problems that we discovered a while back is there was a big chunk of receivables we were expecting from Walmart. We went past the due date of when it should have arrived. Then we're like, okay, something's going on here. Why haven't we received this money? So then we have to reach out to one person. It's like, hey, can you help us figure out what's kind of going on over here? Then they go through the systems. They figure out all these invoices that were submitted. Actually, they technically weren't submitted perfectly and there's this one little issue in the submission. So they threw up these errors and nobody was checking that error reports were even a thing to worry about because again, it never happened before. So now you're like, oh, okay, cool. So this very large amount of wholesale Receivables, we didn't even realize that they didn't accept it. So we need to now make all those corrections, which also takes time. And then you resubmit it, but they don't just say, oh, okay, you're good now, we'll pay you. Like, oh, they just reset the timer. So now you're going to still have to wait another 45 days to receive that. So now you're putting in all this work and effort to catch all the mistakes and make sure people are paying you and you're still waiting a super long time to get your cash. And people don't appreciate that it's now a lot of work. You've already made the sale. Now it's all the effort that goes into getting your money. Speaker 3: We're like net 120 when that happened, right? Speaker 1: It pretty much took us four months to get it. Speaker 3: And even now, because we've entered so many of these smaller retailer chains, we're facing that. It's like, okay, you guys are now like a week or two overdue and they're just not even replying to our emails some of the time. Speaker 1: That one thread, I think it was 50 emails and Raj just keeps harassing the guy. How are they just ignoring you? I don't get it. Speaker 3: And then like Hollywood would be like, is there any update? I'm like, we're trying. We're trying to figure it out. Speaker 2: Another piece, and again, we're going on the theme of like just cash flow mistakes and that slowly start to, you know, poke at your business. Another piece is this miscalculation of cost of goods. I think we've done it. We see it being done by others. Why is it almost like a mistake that feels so common but shouldn't be, right? And I think it's because for us, it's like, oh, a manufacturer is charting us $4.27 for these pills? Cool, that's my COGS. And it's like, that's the start of your COGS. But any best practices on really to drill down this and how much material difference it can really make? Speaker 1: Yeah, absolutely. So the issue exactly is that a lot of people fundamentally don't understand how many things you need to incorporate into your COGS. And even if they do, let's say they get, okay, fine, this is what my manufacturer is costing me. There's going to be other confounding elements. Like what if you're buying the packaging because you have custom packaging? You're also buying the label. So those are additional costs. The cost from the manufacturer might change over time. So technically you need to be making updates to that on an ongoing basis. Depending on how you ship, if you ship less than a container, Or if you're shipping air versus sea, like all of those things are going to be confounding variables that are going to change how you do your costing. And the thing is that certain data flows are kind of frequent and they're more interesting, like you probably check your revenue and your ROAS and all that hourly, if anything. But checking the changes in your cost, there's no very smooth way to get that information. And you have to kind of sit there and do the math on an ongoing basis, keep updating that. So the problem is that people oftentimes don't want to do that, and that's before you even get into manufacturing. If you're doing your own manufacturing, it's a whole other ballgame in terms of costing. But the problem is that what brands will do is that they'll do the math once, they'll make their decision, and then they'll plan their entire strategy around that. They'll calculate, you know, their break-even ROAS. They'll calculate their contribution margins, all the things, their pricing, the wholesale, all that will be based on that costing. And unless there's a specific trigger that tells them why they need to kind of redo the analysis, they just kind of take it for granted. And that's kind of one of the issues that we had at a certain point kind of in the early Walmart days where the math just kept not working out in a way where it seemed like, okay, something's kind of going wrong. There must be an issue. I guess to answer the question about the best practice is doing a reconciliation between your accounting inventory costs and what you're actually seeing in the system. That will help you make sure if you're having any sort of issues. And we kept noticing every month there's always this reconciliation error. What's going on here? When we dug into it, it's more likely than not a costing error. And when we went through that exercise, well, Most of you probably and Josh can handle that. When they went through the exercise, we realized that some of the products were costed at a level that actually made them unprofitable to be sold at Walmart. And so we were losing money on some of these products that were selling to them after all the rollbacks and whatnot. And that was a big impetus for how the strategy for Walmart was changed. And the benefit of that is you got like a 20 point increase on your gross margin. I mean, it's massive, massive improvements in the Walmart gross margin as a result of that. But those mistakes for a while were actually just digging a hole that wasn't super obvious because nobody kind of went through the process of recalculating the cost on an ongoing basis because it's, yeah, it's hard. Speaker 2: Great point. Great call out. I'm actually going to start with like a little bit of a pop quiz because I feel like this question When you ask a marketer is answered sometimes differently than when you're asked like a finance person, right? So Ash, I'll ask you. And I think you know the answer to this because you've lived through it now, but like Why does cash flow never match profit? Speaker 4: I hate this because like you could as a as an operator like as a marketer It's like you know what you can you can have a solid you know few months or maybe a year of really good performance really strong contribution margin and And then have the finance team come to you and be like, there's no more money. And so for me, I understand, right? It's like, you're not accounting for the investments that you're making into the business, right? Inventory, it's not like you're drop shipping, right? You have to, you know, put the cash in to get the inventory back. It's tough from the marketing perspective of Okay, you can do everything really, really well. You can, you know, dial in your marketing, your creatives, your funnels, everything, generate a positive contribution margin, but then go back and say, well, can I go and reinvest anywhere else? And it's like, well, cash is tied up. And so that part will never make sense to me. But I mean... Speaker 2: That's actually a great segue into why this is not making sense to many of us. Again, you have general marketers watching this and they'll still just... You can explain it, but it doesn't understand because there is an illusion to it. It's part to it. If you can break that down for us, it'd be great. Speaker 4: Where did the money go? Speaker 1: So the way I like to explain it is like a little story or a fairy tale, if you will. So let's say dude over here, he decides to start a Shopify store. So he puts his product up on Shopify. He runs one of those organic TikTok accounts where you just post the same video 45 different times with different trending sounds, have some stuff go viral, starts making money. In a situation like that, you have a perfect match between your accrual profit and loss and your cash. Everything matches up perfectly. Where the issues always show up is the balance sheet because that's what's kind of buffering the difference. So let's say all of a sudden he decides to start running ads. So now he runs, he spends $10,000 in a month. That hits his expenses. It doesn't hit his cash flow yet because he's only paid that 25 days later. That's a liability on the balance sheet. Then he scales up a little bit more and he's like, okay, cool. I want to customize my product. This is actually going well. I have a thing going on over here. So now I'm going to start actually paying for the inventory and kind of holding it. So 400k of cash is going to go out of his bank account. That doesn't hit his profit and loss. That only hits maybe 20k a month each month. So again, you have that being buffered by your balance sheet. Now he scales up a little bit more and he's saying, okay, cool. I need actually a little bit of money that I want to take like a merchant cash advance. So 300k hits his bank account. Okay, cool. That doesn't hit his P&L. Now he starts Making sales, he's doing 20k a day, for example, but that 20k a day is not hitting his bank account because 6k is actually going to pay back the MCA and at the same time, that's not hitting his P&L. So again, you get an additional level of kind of a buffer going on there. At the same time, you're also collecting cash as time goes on for sales taxes. That's hitting your bank account. It's not hitting your P&L, but you're gonna have to pay that out to tax authorities. Then you decide to scale a little bit more. You go into wholesale. Now all of a sudden you have an issue where you have sales that are hitting your P&L. It looks like it's very good, but you have the delays kind of like what we discussed with respect to just your normal delays and then additional delays on top of that. So again, that's not hitting your cash and that's kind of sitting on your balance sheet. Then you scale up a little bit more and you say, okay, cool. Now I'm going to build my own fulfillment center. So now you have massive fixed expenses that you're going to invest into that. Hitting your balance sheet, hitting your cash flow, but not hitting your P&L other than kind of a depreciation that hits that. So ultimately, it's just a question of like, as your business evolves, there's just more and more complexity and more things that can create this buffer and that discrepancy. And more likely than not, every single thing I explained as an individual thing, anybody listening like, yeah, that makes sense. That makes sense. That makes sense. As a whole, it just becomes less and less intuitive. So, nothing I said would be surprising or difficult for you to understand. All of it probably made sense, but the problem is we don't think that way and it's not very clear. And so, the less intuitive it becomes, it becomes harder to naturally understand why that's happening and it just becomes that much more important to actually take the annoying slowdown time to sit there and like, all right, let me look at my financial statements and say, you know, what's going on here. It just becomes necessary because it's just not intuitive anymore. Speaker 2: Makes a lot of sense. When you look at it from a viewpoint of like, can we become better at understanding it? What are some of those steps? At the end of the day, you're typically only going to do a P&L review once a month, right, at the end. From there, between that and that once a month time, you're typically between a lot of different attribution tools or something that you've built maybe in TripleWhale or NorthBeam or whatever it may be. And then you may be doing some level of daily reporting of like, how do we perform yesterday? Is there anything else that can help understand this? This illusion on a more daily or weekly basis other than just being just better in tune with how your breakdown of expenses versus revenue is? Speaker 1: For sure. To my mind, I think the cash flow forecasting is really just the thing that helps the most. If you have a good weekly forecast of that nature and you can break it down by channel and have You know, these live data feeds that are kind of just updating it as you go, which is how we've set it up for you guys. It gives you a much better visibility, not only into the historicals, because like each week as you're kind of reviewing it, you see, okay, why did those things not match up and where did the cash come from and how did that all work out? But then it also makes it a lot easier for you to kind of see what's going to happen in the future to prepare for it. So that way if, you know, Ash wants to spend a lot more money, rather you can tell him like, yeah, sorry. The wholesale invoices didn't come in. We're going to have to wait a little on that. Speaker 2: I think if you want to touch on how you use that forecast also build a little bit of a cash window. And how you use some of that as your North Star too in discussion forums with marketing and myself as well. Speaker 3: Yeah, I mean, me and Ash constantly go back and forth on this because he always thinks that we're in a lot better of a situation. Or not always, but just sometimes when it happens, I'm sure that's all he remembers. So, like even just like recently, right, like we expanded into a ton of retailers in the second half of last year. And then at the same time, just as everyone felt it, like eCommerce-wide, the slowdown that was like, you know, November, December, January, and even kind of still currently. When we're now in this slow rate in the last two quarters, on top of putting so much investments in inventory and then all that revenue from the retailers is just sitting in the AR, and we have all of our previous ad spend and inventory invoices catching up, which are always like, Bigger, bigger, bigger relative to what we're performing now. All of that is like, okay, we're just losing so much money, like so much is going out relative to what's coming in. And I mean, that's obviously just like the, that's the situation that we've seen. And that's like the core of like the arguments we get. But then going back to the cash window, it's good to be able to see like, okay, when does that negative cash cycle end? And when can we start to strategize on like, okay, do we have the budgets to test a new product or a new funnel or a new marketing channel? And I can kind of tell you like, okay, you can do it if we either raise this much or if we wait until this, we'll be in a better situation to do it. So, and even like scenario planning, it's like, okay, if we are going to be cutting overhead or stopping inventory purchases for X amount or even Scaling back ad spend but at a higher efficiency but, you know, lower spend, we can see all those different scenario plannings by using that cash window. So, super helpful. Speaker 2: Can you jump into a little bit about like, I think our cycling of cash has varied a little bit, but we've also fallen into a pattern where we typically sometimes carry a higher payables, right? And then you also have these small inflection points of like doing really well at DTC and then some rough days or a wholesale order might get delayed or something gets pushed off. And how you've seen that unfold and I know you've kind of guided us through a lot of it, but maybe like using us as an example, what are certain things that maybe we shouldn't have done that maybe we've gotten better about and maybe not, but what are some of those things that, you know, got to a little bit higher risk from just decision making that we did? Speaker 1: That's a great question. I appreciate you guys are very transparent about some of the mistakes and kind of challenges you've experienced. But I think, for example, earlier in the summer, one of the things that happened is we started popping off really hard on DTC. We're seeing really, really good results. And because of that, we decided to invest a lot into inventory. And because a lot of cash was coming in against DTC, so a lot of cash comes in quickly. You have a lot of cash coming in. You're hoping that it's going to continue like that. So you bring in a lot of inventory. It's a slightly confounded by, and I assume like this is something you can probably speak to as well, that when it comes to making decisions around DTC, while there's obviously some level of unpredictability with respect to how the algorithm is going to go, you're in control for a very significant degree that you have the power to kind of make the decisions how things are going to go. But with something like a very significant partner, like say Walmart on wholesale, a lot of times you go in there, you're excited to get in and then you're like, okay, well, how much are we going to sell? And they're like, this is what we project for the next six quarters. And you're like, all right, cool. I mean, you're the big guy. You probably know, but they never sold your product, but you have to kind of plan for that. And we're entrepreneurs. We're optimistic people. So we're like, yeah, hell yeah, we're probably gonna do even better than that. But then if it doesn't work out, then you're stuck in this weird situation where You've over-indexed on the inventory side. You might run into this issue where like you might have special SKUs for a particular wholesaler or at a minimum they're just packaged differently. Like we were talking about how even just being able to repackage some of this stuff for the other channel is going to incur an additional cost. So you run into a situation where you're really over-indexed on inventory and your cash balance still looks good but part of that is because you've just done a great job of negotiating with your vendors so that you're able to kind of extend a lot of those payables and kind of kick it out over some amount of time. But the thing that I guess maybe to a certain extent we didn't always pay enough attention to was things like our quick ratio. Knowing that while we have a lot of cash in the bank, sales are doing well, revenue is looking good, contribution margin is solid. The truth is that in terms of the amount of liabilities we have that are going to have to be settled at some point or unless we're going to just completely damage those relationships, the ratio is just not quite there for everything to be covered. And for us to have enough cash to cover all those liabilities and still kind of keep operating, we need to move some of this inventory faster. And the problem is that especially if that happens to coincide with a slowdown in terms of the performance, now all of a sudden the inventory that you needed to move faster is harder to move faster. And that's oftentimes where things can kind of become a little bit problematic because what'll happen is a lot of payables that you're delaying, if they all come due at the same time or some of the vendors get angry at the same time, it's like, ah shit, I really got to figure this out. So it can get tight. Speaker 2: That's a great explanation. And I think part of this comes from this glory chase of like the negative cash conversion cycle, right? There used to be a time when we were in DTC where people didn't even know what that was. I remember we'd all talk about it and be like, well, what is it really? I think now people understand it better, right? I think the idea of what DTC plays a part into it versus a wholesale. But when it comes to Negative cash conversion cycles or the conversion cycle in general, buy channel, anything else you call out there for brands to watch out for, to think about as they're crafting and looking at their current cycles. Speaker 1: Yeah, I mean, interestingly enough, it was actually a couple of months ago, I think, that we kind of did that exercise of breaking down the cash conversion cycle by each channel. And funnily enough, wholesale actually was doing a lot better than we would have intuitively expected. But part of the reason we kind of came to that conclusion is because on DTC in particular, and to be fair, maybe this is because we're allocating a lot of college into DTC and not to Walmart because they weren't buying it. But that's where we noticed that there was just a lot of inventory that wasn't moving at the rate that we wanted to and that's what was really extending that cash conversion cycle. In your case, because you have a lot of good relationships with your vendors, you actually do have good payment terms and you can kind of push those hard if you need to in instances where it becomes necessary and they also have a pretty good lead time. They supply you pretty quickly too. It just became that much more important for us to keep that inventory balance low but As we do bring up on every monthly call, yeah, sometimes it's higher than we'd like and that's kind of what has dragged out the cash conversion cycle for us. Speaker 2: Super helpful. Speaker 4: Can you explain why negative cash conversion cycle is a good thing for the marketers that are listening? Because it doesn't sound great. Speaker 1: So essentially the idea becomes that if you're in the situation where you don't necessarily need to, or I'll tackle it from the other direction. In a positive cash conversion cycle, I need to be able to put down, say, $500K of inventory or $500 of cash to get my $500K of inventory. And then as time goes on, I'll be able to kind of sell that to first recoup my $500K and then, let's say, make an extra $1.5M on top of that if I'm running at a 75% margin. So if I want to keep doing that scaling, I just have to keep putting down that $500K. So I also have to have that cash available. And if I want to double down on that because I'm doing well, well, now I need to have a million dollars of cash. But if you're in a situation where you have a negative cash conversion cycle, basically you can tell your vendors that like, hey, I'm gonna pay you super late. So I'm gonna take 90 days to pay you and if I'm able to clear that inventory very quickly, Now, I don't really need that much money. I can get the inventory. I don't have to put the cash down. I had no cash in the bank. I can still do it. If I sell it, I get my 2 million. Now, I gave them their 500K. Now, I can drop another 1.5 million on more inventory because I can just scale as much as I want. And in fact, I can drop 3 million of inventory because I have 1.5 of cash if I want and then another 1.5 because they're the ones paying for it. So essentially, you're using your vendor To a certain extent as your financier to kind of give you your, not to get too accounting-y or finance-y, but to get more networking capital out of that so that you're able to use that and just keep scaling. It is an ideal scenario to be in because essentially it puts you in a position where you need a lot less financing than you would if you're in a positive cash conversion cycle scenario. Where it does become a little bit dangerous is that some people interpret a negative cash conversion cycle as like, oh, it's free money and so therefore I can scale as hard as I want. But the issue is that if you have bad economics, bad unit economics and you're not really profitable, that's just going to catch up with you. It's just a question of time at that point. So it doesn't mean you can scale forever. It just means that you're using your vendor as a financier instead of a banker. Speaker 4: That just put it into perspective. Thank you for that. Speaker 2: I think on that same note, the great debate has always been taking equity and getting a raise done versus looking at debt. And I'm sure with the amount of brands you work with, you've seen the gambit of it. You've seen pros and cons of both. In today's climate, and maybe there isn't a one size fits all, but help us walk through, if you're looking at a brand, What are some of the things to consider which route to go? I know for us, we haven't had the greatest Rolodex to go out for equity raises in a more efficient manner, but we've also been fairly good at utilizing that, especially with the tools Ravi has found, and I think that's been a fan favorite for us, but how do you really decide, and what's the right way to think about it? Speaker 1: I guess the way I think of it is in a perfect world scenario if you have a really rich uncle who's gonna give you a million dollars and he's like, no interest, pay me back whenever you want. One year, two years, I don't really care. You'll always go for that magical debt because that will always be the best way to go because essentially you get the money and you give it back whenever you can. You don't have to worry about things. If you waste it all somehow, again, you'll figure it out and your uncle's cool. He's not going to say anything. So that's the perfect case scenario. You'll always want to go for debt if it's cheap enough in theory. The reality is that we don't have super rich uncles who are that kind to us. So basically what ends up happening is that we have to start basically thinking of the cost of the capital that we want to raise. And as that cost goes up, there become instances where the equity can make more sense. But to put it in kind of like a rule of thumb scenario, the way I think of it is that Firstly, as the cost of capital kind of creeps up, you know, 1%, that's fine, 2%, 8%, 12%, all right, maybe it's getting a little bit tight, you get to 20%, you're like, okay, maybe equity makes a bit more sense. So one side of it is just considering the cost. The second side of it is considering what are you actually going to do with the money. So if you need to borrow money so that, for example, you're going to Black Friday, I just need to make a very large inventory purchase and I'm going to recoup that money five times over in 90 days. So you can go through the debt route to do that. But if you have this very long-term play, And especially if it is a risky play, then like one that might not pay off, that's where the equity can make more sense. So say, for example, you want to expand into wholesale. So you're saying, okay, cool. I'm going to have to hire all these people. I'm going to make this investment. It's going to be maybe six to 12 months before we even start to see traction and maybe 18 months before we break even. So like that's not something I can realistically do comfortably through debt. So that might be a reason to go the equity route because it's going to be a very long time before I can get that payback. And debt is better for kind of short term things where you have a very concrete plan for how that money is going to be recouped. The second thing is if you can get a strategic value out of that partnership where it's like the person who's actually investing in you is somebody who has a lot of good retail relationships like, okay, cool. They'll actually help you because now they got some skin in the game. They actually care about what your outcomes are. And the third thing is if that whole plan fails, well, in the debt scenario, you have to pay that back. So if you decide to take debt to expand into wholesale and then it doesn't work out, who's picking up that bill? Ash. He's got to pay for it. Whereas on the other hand, if it's a situation where you can go through the equity route, I mean, honestly, we don't want that to happen, but if it doesn't work out, It's fine. Nobody's going to come knocking on your door. I mean, you'll get calls from the board, but whatever. Just put them on DND. So you can ignore that and move on and still be able to kind of recoup things over time. So I'd say generally those are the three kind of like bullet points to consider about kind of which option to go with. But it'll vary from brand to brand because not all of them have necessarily the same options in terms of debt availability nor equity availability. Speaker 2: And when you look at the climate in 2025, Generally speaking, would you apply leaning to one way or in another more just given the macro? Speaker 1: I would probably say these days I lean a little bit more towards the debt side just because there isn't quite as much, I guess, appetites equity wise. And there are quite a few good options from a debt perspective that are like just configured very differently, whether it be like fancy ass credit cards or MCAs or different fintechs. There's a lot of options that do exist with different kind of cost of capitals and different like burdens of also kind of acquiring the debt and then also kind of maintaining the relationship or whatever. It would very much come down to I think what your specific use case is. Like for example in the case of the partner that you're working with right now, the approach that they have that I like is that you have to specifically finance particular invoices. And so it almost forces you to have this discipline of like not being in a situation where you just have bad unit economics. You're not running the business very well and that's what a lot of brands do when they take MCAs. They just take money. I'm like, okay, cool. I just need money and I'll keep going. But the problem is if they don't actually have a plan for how they'll make that money back and then the interest on top of that, then they're just gonna have to take more debt. So being able to have like just good planning for why you need this particular piece of debt, I think is what makes it easier to make the decisions. Speaker 2: When you kind of came on board with Obvi and some of the things that we were doing, not just from a cash flow and P&L basis, but also from a marketing standpoint, right? And I think there was a big shift in going this route of like, hey, let's go and chase revenue or let's go and hit certain, you know, goals and milestones that I think we kind of put in our own mind because In our mind, growth was everything. But I think it shifted towards this idea of profit-first marketing. I love Ash's approach because I know from before he even gets into the P&L basis, he's looking at contribution margin. He's looking at certain key metrics. But I think just talking through this shift of it actually starts from a marketer. To understanding the numbers. So maybe Ash, if you want to touch a little bit about how you're first of all doing your own mini P&L within marketing and performance and then if you want to touch on like how you look at marketing metrics to be able to make sure you can guide us the right way. Speaker 4: Yeah, so I think when we first started obviously we needed to be profitable on the first order in order to continue to build the business, right? Reinvest, get more inventory, etc, etc. Obviously, this was at a time, right, this is back in 2019, where it was possible to put in a dollar and make two or three, right? Now you're getting to a point where obviously marketing is becoming more expensive. We all know that. But when you get to a point in the business where you've grown enough, I think we took the approach of well, We know we have some sort of LTV. We know that we can afford some sort of CAC and it doesn't necessarily need to be first order profitable, right? I think we made the initial mistake of not fully understanding what that LTV really was and what that meant at different, you know, time frames. So a three month, a six month, a 12 month and then assuming that, okay, well at this level of CAC, like, Cool, you can lose money on the first order, but it'll come back. The problem is, is that when you look way too out at that like longer window, there's so many things that could change, right? One, you know, you could have for, and this is what happened with us is, you know, we had a big influencer that stopped working with us. So a big chunk of our customer base stopped shopping with us. And so right off the bat, whatever LTV you thought you were going to get in 12 months is no longer there. And so now you've lost that money because you're not going to realize that. That is what I think put us in a really bad position. And you have other things that are going to happen, right? Whether it's a pandemic or there's an algorithm change, whatever it is, you can't rely on things being consistent. I think moving towards a first order profitability model made the most sense to me and the only way to really understand that is to understand your numbers, right? At first, I think the finance team before you guys even really came on board was, hey, hit this CAC and you're good, right? And that's all I heard in my head is you have, you know, you can spend $50 to acquire a customer, go for it. Now it's, okay, well, Understanding what your new customer AOV is, understanding what a new customer CAC can be by actually calculating, okay, well, what's the break-even point, right? Taking your sales, your MSRP, taking out all the variable costs, your cost of goods, discounts, processing fees, whatever it is, and understanding what you actually have left is what you can invest into acquiring a customer. And that is what now I'm looking at as Okay, I know my breakeven point is at a 1.5 new customer ROAS. Anything below that, I know I'm at a positive contribution margin. If I'm within that threshold, let me scale. And I think for myself, it's setting a threshold of what I'm also happy with and what I feel like I can attain. So if I can acquire a customer and profit $10 per order, cool, let me scale this, right? I think working with Ravi and you guys, it's like, okay, well, if I'm maybe getting that plus one, plus $2 per customer, maybe slow down and maybe figure things out, But that's been my North Star is contribution margin. I'm not even looking at CAC anymore. It's just a function of what the new customer role is and how much are we profiting per order. Speaker 1: What's interesting is, and correct me if I'm wrong, because I think two of these things probably happened before I started working with you guys, but with the LTV game, what's a little bit dangerous is that a lot of times people will look at what their LTV might show in Shopify and then extrapolate that in a way that's not necessarily fair. So presumably, the LTV of the people who are coming in from that influencer Might have been very different because they have a much more organic affinity for your product, especially through that influencer, especially because she's constantly remarketing to them. So if you extrapolate that LTV to the person that you're acquiring through Facebook ads, who by definition is susceptible to advertising, you probably stole them from someone else. Someone's going to steal them back from you. That LTV probably doesn't translate. So you're going to assume you're going to get influencer LTV, which is going to be a lot lower from the Facebook ad side. And so that kind of messes with your cacked LTV math. And then on top of that, It was around the time that I started working with you guys that you guys moved from like the collagen as your core product to a little bit more of the fat burners. And presumably, there's also that confounding element that the collagen probably had a certain type of LTV that you might not have ended up seeing on the fat burner. But if you extrapolate it out, you're like, oh, if we get the same LTV on the fat burner that we did on the collagen, that's again going to screw up your math. Is that actually kind of how it worked out? Speaker 4: Yeah, I mean it definitely changes, right? It goes back to my initial thought of like your LTV is ever-moving, right? It's gonna be ever-changing. There's no point in relying on saying, okay, well, in 12 months, let's just say from last year, the customer that bought in January in 24 by December 24 had X amount of LTV. That's not gonna be the same this year, right? Because also the strategy is gonna change whether maybe we launch a new product. That becomes a hero SKU that becomes our new top of funnel initiative. We don't know what the LTV is. Those targets are going to change, right? And then like you said, mentioning swapping from going from the college into a different product. Again, these are different people altogether. You're talking about different audiences. Those people are going to have way different LTVs. And then are people buying a one-time order versus a subscription? I think not looking at it in a blanket, oh, what's your LTV? I feel like people have been trained to have this like one number in their head when somebody asks you, what is your LTV? It's actually really interesting is like, even when we were raising money, some of the questions are blanket, what is your LTV? There's no one answer to that. And so when you kind of peel it back and say, okay, well, This person is buying this product. Maybe let's look at it on a shorter window and maybe lean into that, but I feel like at this point is one where we're trying to stay lean. We're not trying to give up too much equity and be self-sufficient. So be first order profitable and then grow from there. Speaker 1: The best case scenario that I try to recommend to brands, I know it's not always feasible depending on kind of like their product profile and the way that people interact with it, but if you can get to a point where you're returning customer contribution margin, can cover your fixed expenses, then you can be a lot more aggressive on the new customer acquisition side. You can go break even contribution margin from new customers. Because you know that at the very least you have the security to a relatively decent degree that your returning customer revenue is not going to fluctuate wildly. You're not going to get a Facebook ad account and lose that entirely from one month to the next. So that can give you a little bit of comfort on your fixed expenses. You can be a little bit more of a cowboy on the acquisition side. It's not always easy to do that, especially if you're in a position where your returning customer revenue is not at the level that you want it to be. But that for me, I usually think like if you can get there, at least you have the security that you're not hoping that I need to cover my fixed expenses just through new customer contribution margin, ad account starts doing poorly, all of a sudden, I'm in the hole. Speaker 4: Well, how do you advise brands that do have a level of returning customer revenue? How do you advise brands on the actual level of acquisition that's needed? Is that something where you're telling brands, well, you can actually remain stable for the whole year and let returning revenue compound? Or is it, well, if you see these fluctuations in new customer revenue, then you're going to see fluctuations in returning customer revenue? So what's the advice there on how brands should be thinking about that? Speaker 1: That's a great question. It depends to some degree in terms of the returning customer behavior patterns essentially. So how do they repeat purchase and what product specifically and how much they spend. But it's the more you can kind of segment it into different sorts of categories of behavior. So the returning customer versus new customer is the easy one. You can then kind of make decisions from a risk tolerance perspective. So you can say, okay, I know that as long as I'm acquiring at this rate, because ultimately returning customers are a leaky bucket that you have to keep on filling. As long as I'm acquiring at this rate, I can be relatively comfortable. You set conservative targets for the acquisition side of performance and you make sure that your financials all kind of work with those assumptions. Then if things work well, Cool, keep scaling. That's gravy. So you can lean into the good stuff, but don't plan for everything to go great and then be horribly surprised when it doesn't. Speaker 4: Yeah, that makes sense. Speaker 2: As we wrap up, I think the big piece that I want viewers to at least walk away with is What planning ahead means, right? We've talked a lot about understanding core metric versus vanity metrics. We talked about debt versus equity, understanding your numbers, how to look at different things in different ways, avoiding waste, maximizing margins. But when it comes to planning ahead, I feel like that's the one piece that still feels a little bit gray for a lot of people. And it's mainly because The answer I don't know is the most common answer for planning ahead, right? I know when Ravi brings up to, let's say, Ash or even myself, like, hey, what do you think about how many doors are we going to open this year? I have no idea. How many people are you planning to hire? I don't know. I have no idea. And so there's this fundamental answer that feels like it's the go-to default answer, which creates a lot of just, you know, necessary gray area. What's the way to work through that? I know you're big on forecasting and the need to at least follow that, and I think even when we talk to our investors, they're big on forecasting. It seems like everyone on the outside looking in is big on forecasting, but when you're inside, in the nucleus building, you have almost no idea what forecasting means. Tips, ideas, why is it such a big struggle? How do we get out of this? And is it a mindset thing? Is it an operational thing? Just would love your thoughts on how to plan ahead better. Speaker 1: Yeah, for sure. I think the problem with forecasting is that it requires people to do three very difficult things and one very difficult thing is already bad enough. But on the one hand, you need to be able to look at historical data and understand why things are the way they are. And the truth is a lot of brands aren't even good at that part, just looking at what happened and understanding why it happened or how it happened. So you need to get good at that to then also to some degree extrapolate but then also make strategic plans and moves and understand if I do this, what will happen? What are the relationships between different expenses and different activities such that I can build a forecast that's somewhat reliable? And the third piece is you got to be kind of good at spreadsheets. That already is a challenge for a lot of people. So it is quite a lot of things that you need to put together. What I do recommend at the end of the day is that even if you took like the most basic approach of just saying, okay, let me just focus on like my revenue, my cogs, my ad spend and everything else I'll worry about later. Just getting into the habit of trying to forecast out each month and then just doing that actual versus forecast analysis and then take half an hour to kind of sit there and be like, what did I think last month that I was totally wrong about, can at least put you in a position where you can either get more accurate and or become a little bit more conservative so that you miss less or at the very least if you miss, you miss positive. So the mistakes are good mistakes, but you avoid the bad mistakes. And then you can plan accordingly to say, okay, well, now this is what I need to be able to do to stay a bit conservative, to make my plans. That doesn't mean I'm not going to lean in when it's working, but I'm not going to get myself into a situation where I'm like, I can't sleep at night. Speaker 2: So much of it is still like a human nature thing. It's a reason many people don't want to go to a doctor. You don't want to find out the actual, right? Because in your mind, you're like, I'm doing this or like there's so many things you don't do because you don't want to maybe find out what the actual could be. And then when things are going good, you're like, oh, well, the actual doesn't matter. I beat it anyway. So that's super, super helpful. One of the things we see is, especially in this TikTok shop era, is you'll have a day where you're doing 5k in sales and the next day you wake up and you hit a 50k day because somebody went viral and that creator has, you know, now ...moved on to the next thing, or is maybe gonna post about you in a few more weeks or something, and it's hard to know when it's gonna come again. But you start to get into this mindset of like, it's almost like a drug, right? Like, I wanna chase that day again. I wanna get that next creator who can do this too. But that actually has a lot of severe impacts to the business. Some positive, but some also negative. Maybe touch a little bit on that, and I think we've gone through our gambit in it too, so you can give some color on that. Speaker 1: Yeah, it's interesting because I think a lot of brands, the way that they look at their revenue relative to their ad spend, I mean, at a most basic level, they just look at MER. So like, okay, cool. I got this much revenue. I'm running at a 7 MER. Everything's fantastic. And then what they'll do is that they'll project that 7 MER continuing as they kind of increase their ad spend. And what I find can be helpful is if you Even though attribution is not perfect and it's not easy to do this, but insofar as you can kind of break up your revenue into the different channels from which you can expect it to come in. So from the retention side, like, okay, these are going to come in through my retention marketing, whichever software we're using at the time, like that's how that's going to be driving that. I know that reliably I can get this much from Google just based on non-branded search, just knowing my performance is there. It doesn't fluctuate like crazy. Sure, there's changes in search volume, some seasonality, but relatively predictable. There's this amount that I can get with my Facebook ads. I know consistently I can at least perform this well on the Facebook ad side, being able to hit this sort of ROAS, so that's good. The virality is something where if it's one of those things where it just happens to be a spike, then you shouldn't necessarily consider that as a separate almost channel of revenue in a sense, such that you're not confounding your math on all the rest. Unless it's something that you can manufacture. So think of someone like Oliver with Tabs. Like his whole thing was he built virality, he manufactured virality in a sense and he was able to do that. So in that case, it can be very reliable. But if it's something where someone just posted about you once or you just had one video pop off, like great. I mean, the most classic example is anybody who goes on Shark Tank. I've had a lot of brands that I've worked with who have been on Shark Tank. They see spectacular sales in that one month. And any sort of illusions they kind of set for themselves like, oh, this is our new normal. It's like, no, you just got to wait for that episode to re-air and you're going to see those spikes. But until then, it's going to come way down unless you figure out a way to capitalize on that spike through a retention strategy. Having different sets of expectations like this channel I expect to give this much revenue with this amount of confidence, this one's this much revenue, this one's this much, it can help a lot in terms of setting expectations that are clearly and it's also good from a budgeting perspective because different channels have different paybacks in terms of how much money they'll give you back but also a different amount of time it takes. I can run my Google Ads and I know I turn it on today, tomorrow I make my money and I turn it off and I lose the money. Whereas if you run something on like organic TikTok or something like that, you're kind of building up your community over time. You guys have a massive Facebook community. It doesn't pay back right away, but it is something a lot more sustainable. It'll take a lot of time. But once you're able to kind of map out each one of these channels, this is how much money each one of these activities are going to give me. This is how long each one of them is going to take to pay back. And that's how confident I am in each one of these channels. You can then also set a strategy that helps with the whole Performance versus brand marketing side where I can afford to spend this much on long-term ROIs because I only need this much to give me immediate ROIs. So I find breaking it out into those channels, and again, ultimately that's where Ash would have to kind of do the heavy lifting because you have the best experience with it because you know what each channel's value is, especially if you have good attribution. But that's, I think, how you're able to kind of tackle that issue of saying, okay, I had that viral moment, that's great, but let's not get carried away with what that means because I'm just looking at a blended revenue and MER. Speaker 3: I have a question for you and Ash, but how do you perpetuate that result, whether it be Shark Tank or a creator video or working with an agency that focuses on organic content? Have you seen any brands successfully perpetuate it, whether running ads on those viral moments or anything like that? Speaker 1: So what I have seen and what I've also helped brands do is if they are on Shark Tank, you start taking those clips, especially if they get a deal, you put them in every single ad you can, as often as you can. So you want to try to leverage that as much as possible. I think there's obviously the opportunities for kind of like whitelisting and stuff like that, taking those viral moments and also breaking it down and seeing if you can replicate them as often as possible. If the algorithm responded to it well organically and humans also responded well and made purchases, if there's an opportunity to put money behind that, that's fantastic. What I found was very impressive with you guys was In early 2024, when revenue was not bad, but like not as high as it was in late 2024, we're doing very well. And then all of a sudden you start popping off like organically. And I remember we would have these conversations every month where we would have, we had a very strong February, but we knew it was because of some viral TikToks. And we're like, okay, well, what do we think is going to happen in March? Like, is that virality going to sustain itself? Like, maybe not. Let's not pretend. But then it did. And somehow March did well too. And then April and then May. And I assume that's mostly somehow you were able to kind of lean into that, not only on the one hand maintain a lot of viral content going out, so manufacturing virality, but your ads also seem to have just really kind of rode that wave. So you got much better ad performance as a result of that organic performance too. Speaker 4: Yeah, I mean, it was the key that was missing for us and I would also say for a lot of brands is that these viral moments do create that top of funnel awareness. And as platforms like Meta are changing, they're not going to drive that type of awareness that you can find through Influencer or even TikTok or just those viral moments, right? So I think the funnel that we had in place and the things that we were doing on Meta was really good at capturing that middle of the funnel, bottom of the funnel, audience. We just had to funnel some sort of awareness into this. And so that's why the strategy worked where we're running cost caps. Again, we're even with cost capture, you're really honing in on that middle of funnel audience. After seeing what going viral could do, and we've seen it before in the past, but we weren't able to kind of like hold on to it. After understanding what works on TikTok for the brand, like doubling down on that, I think that's where We understood how important organic is and will continue to be. And I think that's why in 2025, like everybody that is running ads should have some organic presence, whether it's, you know, your own page or working with influencers or seeding, like that's why these conversations are becoming more and more. Popular as meta becomes less and less efficient at being the reason people's eyes are on your brand. Speaker 1: Just out of curiosity, I know you're a big fan of running statics on meta. When you do have those videos, especially on the TikTok side, that organically have very strong performance and they drive a lot of conversions, you can see it just from a correlation perspective, even if there's no attribution technically there. Have you seen any success with running those videos on meta as ads? Speaker 4: So, you would think. Speaker 1: I would. Speaker 4: The problem is that you do get some pieces of content that can maybe work as ads if you chop it up and make it more direct response. The problem is, it goes back to that top of funnel theory of meta just delivering ads around this constant population or audience or demographic that it's just honed in on. And so it's very hard for this type of content to go and find new people. Now, unless you're running reach campaigns and video views and things like that, it is possible, but what we typically do is we'll have influencers, they'll maybe go live on Facebook, right? They'll generate half a million views, tons of engagement, but a 12 minute long video is definitely not something that's gonna convert as a paid ad, right? But taking that content, shortening it down to 30 seconds, 45, 60, that is probably what's gonna work. And that's what we've seen done pretty well, but it's still, it's really tough to manufacture that top of funnel awareness again, right? Speaker 3: So that's running on meta. Have we, one, tried to push it back on TikTok just through sponsored ads or post the same exact video through multiple accounts to see if they'd hit multiple different audience that might look like to what went viral? Speaker 4: Listen, I mean, if it was easy to manufacture, I feel like These videos would go off like every day. I think it's honestly going viral in my opinion. There is some level of luck With the algorithm and something that is very tough to manufacture. I think when, you know, Oliver did it, I think it was hiring hundreds, if not almost, you know, thousands of creators to just create content and hope something happens, right? We've tried that approach. Rarely works. And so it's tough and it depends on the product too. So if you have those moments, try to capitalize on it. Understand that yes, there's going to be a halo effect on your DTC. You'll start to see your ads perform better and when you do see your ads starting to perform better, push on spending more and then you'll probably see even Amazon pick up your retail and things like that. So capitalize on it. Don't make it the entire basis like you said because you could maybe go viral once and never again. Speaker 1: Yeah, I think that's why it's nice to diversify on the different channels because if you just say like Facebook ads are working for me, I'm gonna scale that to the absolute maximum dollars that I can put in before I start going negative, then you don't have the opportunity to test out these different channels that have a little bit of a top-of-funnel or long-term impact. Speaker 2: I agree. Speaker 4: And I think it also opens people's eyes up to like the other channels like CTV, Linear. So it proves out the concept without you having to spend so much to understand how organic can impact the business and then how can you create that in other avenues. Speaker 3: Have you ever seen results in taking other successful ads or viral videos and putting that into like a different language like Spanish and just seeing if it has also the same result but a different audience? Speaker 4: It's a good question. No. I do. I do think that there are a lot of opportunities for people to take what is working and then definitely like translate it into different languages and hit different demos. I mean, that's why like expanding internationally was a big move for us right last year. I think getting very localized is something that we need to test. One thing somebody tweeted out, I think it was a couple of days ago, where it's like, Don't just take your landing page and run it through Google Translate because it will come across as if it was translated by Google. So having somebody to come in and literally translate and do it properly, it makes the world of a difference. So if anybody speaks Spanish fluently, let me know. Speaker 2: Before we jump into the Chew and that piece, Just from your lens out of the hundreds of brands you've worked with now and continue to work with, are there anything that you feel has been super important as a 2025 focus for brands or what you feel like you're repeating over and over in all your CFO meetings? What are some of those things that are coming up a lot, especially going into this year? Speaker 1: I'd say taking a page out of the dropshippers books and trying to like run a little bit more leanly, I think can be helpful until you're in a position where you have either the safety net from a cash perspective or from a debt slash equity option perspective. Trying to stay a little bit more lean and planning for things not necessarily going quite the way that you want, especially when there is a lot of uncertainty and especially when it is a little bit harder to suddenly get debt or equity if you need to. Being able to play a bit more of a lean cost profile can put people in a position where you can kind of build a little bit more safely and then not be as perturbed when kind of things don't work out the way that you want to. And holding on to less inventory. That's always a good one too. Dropshippers got that part right. Speaker 4: So I definitely learned a lot today. Thanks for letting me sit in on this. But if there's one thing you want the audience to kind of take back and implement in their business today after listening and watching this episode, what would that one chew be? Speaker 1: Hopefully, it's not a boring one, but basically, take the time to actually understand your financials in a way where you don't just kind of pay it lip service. I think a lot of people kind of look at the financial data and they're just like, okay, cool. I looked at it. Yeah, that's my profit. I get that. But being able to take the time in understanding really a little bit more deeply, kind of getting that habit of saying, okay, why are things the way that they are, really spend that time to understand it and kind of use that to plan a little bit more strategically. You know, spend a little bit of time outside just the triple whale dashboard and like the ROAS and all that kind of side of things and really understand How numbers are moving, I think it can help a lot. That's kind of why like you guys see the dashboarding, but the reason we build it the way that we do is we're not focusing strictly on the boring numbers, but we pull in Shopify data, we pull in ad data, we pull in Amazon data like at a granular level and we present it in a way and show the trends and everything. So it's like ultimately my goal is I don't really care about accounting data. I'm just here to show you numbers that hopefully make this easier for you to kind of use strategically to make better decisions. So just taking the time to get comfortable with the numbers will put people in a position where they can just be a little bit more sophisticated with their strategy and less phased when things don't go the way they think that they should. Speaker 2: Chew on that. Speaker 4: If you want more from us, follow us on Twitter, follow us on Instagram, follow us on TikTok and check out the website ChewOnThis.io.