Latest / The Modern Supply Chain / How to align marketing and inventory planning for ecommerce brands
Transcript
- Sean Christman (00:00): The traditional way of putting together a plan is finance sets the target, ops goes and makes the buy, marketing understands, okay, here's what we got to go sell. What we do is we invite marketing to that very early conversation. And through that, you build confidence throughout the org, you build a plan that's much more than just an on paper financial plan. Izzy Rosenzweig (00:27): This is The Modern Supply Chain, the show where we break down modern supply chain strategies that help e-commerce brands shift from staying above water to predictably scaling. Today's guest is Sean Christman, the co-founder of Proper Growth and the vice president of operations of Cuts Clothing. Sean joined Cuts after buying one of the brand's first Kickstarter shirts, which started as a call but his missing order quickly turned to helping the company manage customer service, find a manufacturer, and simplify a storeman that launched with roughly 675 SKUs. Over the next eight years, he worked across operations, supply chain, demand planning, buying, product marketing, and data as Cuts grew into DTC brand, generating more than 50 million in annual revenue. Today, Sean has partnered with CP and finance operator Greg Faustini to build Proper Growth and integrated finance and operations function for inventory heavy consumer brands. Sean, thank you so much for being on The Modern Supply Chain. Sean Christman (01:23): Izzy, thanks for having me. Izzy Rosenzweig (01:25): So again, I was telling you before the podcast, I just get super excited about anyone that lives in this space. So maybe I would love to hear that story. So walk me through this story where a supply chain order goes wrong, brings you into supply chain. I only know the high level of it, but maybe you could tell us a little bit of that story and that background, how you got into Cuts. Sean Christman (01:44): It's an interesting story and it's really at the incarnation of Facebook becoming an arbitrage. Stephen, founder of Cuts, was starting Cuts Clothing with a Kickstarter and I wanted to be a part of it. Bought into it, was excited, ready to get my t-shirt, ready to rep the brand. This was October of 2016. I called him right around Christmas and asking whether he was going to be home for Christmas. We lived in the same hometown. I was also asking, "I haven't got my T-shirt yet. Where is it? I'm excited for it." The short of it is he was glad I called. We met over the course of that Christmas season and I never looked back. We started with customer service emails, vetting vendors, understanding how we were going to produce this second order run, how we were going to set up a supply chain, how we were really going to build the bones of a business. (02:32): When Cuts started, it was fantastic marketing minds, a fantastic understanding of product market fit and how we were going to fit into that market. But where we really cut our teeth over the course of the first couple of years was understanding how to run a physical goods business. I say this often, anybody who's sold anything, that is an accomplishment in and of itself. Creating a physical good and selling it is an entirely other beast. That's the world that we live in. The e-commerce consumer goods space is an inherently difficult place. It wasn't straightforward, it wasn't easy. And where I settled in over the course of those early years at Cuts was as the ops guy, we had a marketing guy, we had a finance guy, we had a CEO, and everything else was ops. It was a big old bucket that we threw everything else into. (03:25): And that's where I lived. It's ops proper, it's warehousing, it's logistics, it's getting product into the warehouse and to a customer, but it's also everything that extends beyond that is where I've focused over the last 10 years, understanding how to work within the constraints of a physical good supply chain, but also looking to understand how do you make it as flexible as possible? Where I live is trying to align this marketing calendar that is quick, that is snappy, that is today, that is this month, and a supply chain calendar, physical product calendar that is months in advance, sometimes years in advance. And the brands that get those two, you're never going to get them perfectly aligned. You're never going to cut that physical creation out of the process, but the brands that are able to leverage and understand where there is opportunity and get that physical product supply chain calendar as close to marketing as possible, those are the brands that are going to win. (04:26): Those are the brands that are winning right now. Izzy Rosenzweig (04:28): So you mentioned Kickstarter. It does feel like that's still a pretty good way to start because you lower the bar of when you need to deliver. It's a Kickstarter, it's not tomorrow and it kind of lets you get exposure. Walk me through, I get your thoughts on how brands should start. Was Kickstarter the right way and then how you evolved after Kickstarter when now you're actually a brand you got to continuously deliver. Sean Christman (04:50): Consumerism is so competitive. What I like to say is it's never been easier to start a business. It's never been harder to build a brand. And what comes with building the brand is understanding who your core consumer is, what is your messaging, how are you going to reach that consumer in a sea of other products? On the build, start a business side, everything has largely been democratized. Everybody knows who Viori's manufacturers are on the apparel side. That is public knowledge. You can go online, you can find it. You can reach out to them and you can find yourself working with them. But simply having that product is not what's going to build a great brand. Now what Kickstarter does is it helps you identify that early. Do you have product market fit? You can get people excited about it before putting in a huge investment, but regardless of whether you start with a Kickstarter or you just start running ads, buy into product and start selling it is the important part is identifying who you are, what your product solves, but mainly who does it solve that problem for and being able to find those folks. (06:00): And that's why content, that's why creative is so important these days, the talk of the town, simply because what it does is it helps target and identify who those folks are, give you signal back that you're doing a great job or maybe you're not doing a great job and help you iterate on that where the product in many ways stays static. There aren't as many cycles in a year that you can change your product, but your messaging, your content, how do you hyper target that individual group of individuals preferably that you're going after? That's where the learnings come from, especially early on is getting reps and understanding who you are, what your product is, but who are you solving for? Izzy Rosenzweig (06:45): Love it. So once you guys identify an ICP, your ideal customer profile, you understand who you're talking to, you validate through Kickstarter. And I guess back to the cut story, now you're starting to scale. At what point in that growth do you like, all right, now we're hitting some problems? Sean Christman (07:01): Where problems start to arise. I mean, there's always problems. You just might not see them because they're not big enough yet. They're not hitting your wallet as hard, but problems arise all through that seven figure journey and they only get bigger to get past that if you haven't solved them yet. In the early days, and this is going to be applicable to a lot of folks, you find yourself in this vicious cycle of cash rich product poor or product rich cash poor. In the early stages of a business, that's what you feel, your bank account or your inventory stack. Really what that is, is a cash flow issue, understanding capital allocation across each of those channels and breaking out of that cycle is incredibly important for that scalability that you're talking about, getting to that next stage. If that next stage is going from two to four or five to 10, understanding that rhythm and that cycle and understanding where you can influence that, it all boils down to understanding your cash flow. (08:03): That's something we did not do a great job of early on. Izzy Rosenzweig (08:06): Most brands don't. It's a hard lesson. Sean Christman (08:09): Exactly. A lot of firefighting, a lot of, okay, let's send more emails, let's get more returning customers to come back. Let's help hedge and pay for the media spend that we need to deploy. But understanding how your two biggest capital allocation decisions work together rather than against each other is ultimately the solve. Now there's a million different other things that happen during that period of time and a million different fires you need to fight, but really the root of all of that is understanding where you should be deploying your cash, when you should be deploying your cash, and again, how those two calendars work together or work against each other. Izzy Rosenzweig (08:48): So maybe we can, I guess, evolve a little bit into Proper Growth. So now you're also on Proper Growth. Can you tell us a little bit about it? What type of companies you help? And I guess this cash and cover framework that you guys mentioned. Love to hear more about it. Sean Christman (09:02): So what we do, we work with brands that are in those early days. Our ICP, our brands that are doing three million, as low as three million, five million, up to 20, 25, 30 million. And what we look to solve for them at the highest level is provide value where value is least available at those brands. What I mean by that is in the early days, investing in understanding the financial side of your business and the operation side of your business is more important than ever. Your ticket to the next stage of growth requires an understanding of that, but it's also during that time when you can't invest into that from a capital standpoint, you need to be marketing, you need to be spending money on Meta, you need to be investing in relationships and brand and product. So we serve that pocket of you need it, you can't afford it, and that's where we come in and help solve it. (10:02): So what we do is integrated ops and finance. We take the back of house, all the less sexy stuff that you didn't get into a business to do, dealing with customs and border patrol, dealing with your warehouse, understanding your inventory stack, how much inventory you have, what's on the way, therefore what do you need to buy relative to your marketing plan, your growth trajectory, and relative to your cash flow. So the cash you carry is understanding exactly what we were talking about. When and where should you invest your capital and how do you get out of that cash rich, product poor, product rich, cash poor situation faster with better visibility and better understanding from a strategic standpoint and get to that next level of growth. It's in the name, Proper Growth. What we're going to do is we're going to help you grow. We're going to push you a little bit and not pull you back or have you hamstrung. (10:59): We're going to look to build that foundation of visibility and for a founder, for a CEO, for an early executive team, give you all the tools and visibility to be able to make the right strategic decisions within your business. Izzy Rosenzweig (11:12): I think to your point, usually finance lives in their own world. Okay, I see cash, I see the P&L, balance sheet looks okay, keep doing what you're doing. And finance doesn't usually go deeper than that because they just look at spreadsheets and that's pretty dangerous to your point. Hey, you could take your cash and be like, "Hey, last year was so good. I'm going to triple down and buy 5X more inventory." Why? Because you want 5X revenue because you know you could get it on Meta, you could. Meta's a big world. You could generate demand if you had the money. I actually love that concept of Proper Growth, but I would imagine it means fundamentally you're holding them back with certain amounts of inventory. Be like, "Hey, I want you to grow, but if you buy 5X inventory, your risk profile is nuts. And if sure you're going to sell it, you're going to be so cash poor, you kind of misunderstood three months or two months, you're screwed." And I've seen it before, getting almost a little too excited. (12:05): How do you balance that? Is that correct? Is there a balance you have to hold them back at some point? Sean Christman (12:10): There is a balance that every business has. There is a profitable contribution margin building rate of growth that every business has. Our job is to be able to find that and then to be able to pull on the levers of the business, including the supply chain, to understand how we don't hold anybody back. That involves having a much broader conversation within a small team, seemingly small team, but a broader conversation across functions. So what we don't do is set a top line target, sit down with the CEO, where do you want to be next year? Okay, let's put together the cog plan to be able to hit that number, or let's put together the plan that ensures 100% we're building cash and we're building profitably. Those are the goals, but there are so many other levers that we dive into. So what we are not is advisory. (13:05): We're not somebody who comes in, reviews the P&L, reviews your inventory stack, says, "Here's what you got to go do this month. We'll see you next month." We execute right along with them. What does that execution look like? Understanding unit economics of the business is a huge portion of what we do. Where can we find margin? A lot of that margin is found in the supply chain. It's found in conversations with the vendor. So we'll get right in with the vendor, be transparent, help them understand this business's plan. Are you willing to take this risk with us? Talk about terms, understanding how we can extend those, talk about clips that we can find with regards to MOQs, finding margin in the supply chain. What we also focus on is the conversion of cash. At the end of the day, you can take cash to the bank. (13:56): You can't take EBITDA, net income, you can't take a revenue number. So we look at cash conversion and we understand how we can find time to get those two calendars that we were talking about closer together. The marketing calendar that's every day, every month, the supply chain product calendar, which is years out. One great way we do that, work with Portless, finding a month in that calendar, right? It's not a solution for everybody, but it is a great solution and a great way to take a large chunk of time out of your calendar. Again, you're creating a physical good, a physical product. There is an action that needs to take place and that action takes time, but where can you find time to get closer, to make decisions closer to when you're selling that product? And then how do you bring other functions into the conversation? (14:50): The traditional way of putting together a plan, maybe the legacy way of putting together a plan is finance sets the target, ops goes and makes the buy, marketing understands, okay, here's what we've got to go sell. What we do is we invite marketing to that very early conversation. They start that conversation in many ways. What are we seeing now? What are we seeing in the market? How much content are we going to need to create to generate enough ads to generate enough demand to be able to sell to these numbers, these growth numbers that we're looking at? And through that, you build confidence throughout the org, you build a plan that's much more than just an on-paper financial plan. At the end of the day, it's all rooted in how much cash do we have? How are we going to allocate that parts of product, parts of marketing? (15:43): And then from a product standpoint and a supply chain standpoint, how do we get that decision of buy, that major locking in of the plan? It doesn't feel like it oftentimes when you're doing it, but you are locking in a future plan. How do we get that as close to that launch as we can? Izzy Rosenzweig (16:01): And again, as you mentioned, Portless, we're massive advocates of everything cash flow, and I appreciate the shout out. I'm curious on your thoughts between different types of e-comm. I think you guys have a background in the apparel space, right? So Cuts and high SKU count, and there's other type of brands that might be selling water bottles, which is like five SKU counts, which sounds amazing for not every water bottle company, but a lot of them. But then there's a downside, LTV sucks, you maybe sell it once or twice. So there's a constant, feels like natural evolution when you have an apparel business or almost any business in order to keep growing, unless you're CPG, unless you're selling cosmetics, but if you're selling apparel, you almost need to grow your skew count in order to keep growing your TAM or keep growing your LTV. But at the same time, the moment you're growing SKU count, you have so much more additional risk. (16:50): So there's pros, LTV, cons, lower SKU count complexity. How do you think about that for brands? Sean Christman (16:58): Increasing SKU count is a natural part of any growing business. You want to capture more share of wallet, you want to increase LTV, the easiest way to do that, come out with more stuff that your existing customers would love. That is a constant expansion and retraction, an expansion and retraction. It's a discovery exercise to understand how do you not just grow SKUs, have more product, take on more inventory risk with the hopes of driving LTV, but how do you strategically go about that? And having a logic behind that is valuable in that exercise, not just a product expansion and whether you go color variant, then new products, then color variants of that new product and try and inch your way out and find new opportunities, but also from a testing framework, using the stages of the year as a opportunity to test. So within e-commerce, naturally what happens is consumer demand happens over the course of the fall. (18:03): You've got holidays, you've got this industry or consumerism pressure to buy things, there's deals, you got to get it now, all of this pressure. How do you maximize that time every single year is oftentimes using the first half of the year as your testing ground. If you have big ideas for a new product launch, this is going to be massive for us in 2027. Maybe you have a couple of those. Test them over the course of Q1. Demand is lower depending on your industry, Q1, Q2. Use it as a testing ground and understand how you can extrapolate that data out. What it doesn't mean, come out with one, two, a hundred units, this is all relative, but come out with a small amount, sell out really quick and say, okay, we could do 10,000. Make it a meaningful amount, truly go to market, but through that exercise, look to set benchmarks so that next buy can be set up not only from a go-to-market standpoint, but from a supply chain standpoint, from a content standpoint, therefore an ad and spend standpoint, and you can have confidence in that bigger plan. (19:13): So with regards to product expansion and retention in general, it's looking to understand and create the conditions that allow you to be confident in that go-to-market that you're going into, not on a whim, excited about something without having really tested it or understanding whether the market is going to take it. Izzy Rosenzweig (19:34): Yeah. For Portless, again, how we keep advising our customers is shots on goal. The more tests you could do with a very low risk profile, small batch I think is what you're referring to, small batch manufacturing, we'll bring you that next winner. And usually the winners is what changes the business. To have a hundred skews to sell a little bit of it is maybe you need to do it as part of your expansion over time. That's not where the winners come. We'd love to get your thoughts on how you think. You mentioned about turning inventory back into cash, and there's a lot of brands we've seen that will never do a sale, be like, "Hey, we will hold our price point. We're too cool or we're like, that is our brand positioning." On the flip note, every brand's going to have a scenario where there's excess inventory and that is cash that you cannot touch. (20:20): How do you either see either mistakes or advise or your thoughts on should there be a strategic sales strategy to simply get cash out of inventory that maybe you took a wrong swing at? Sean Christman (20:35): So the way I think about this, every asset in your business is just a different color of money. It's either sitting in your bank account, it's going to Mark Zuckerberg, it's sitting in your warehouse. The way that we look at that is understanding the life cycle of a product. If you are a business that never has to discount, that can always sell at full price and have the capital to be able to hold that inventory until that last one sells out, congratulations. That is the minority. For most of us, it is understanding how you take that cash that is in product form that is sitting there that should be on the next purchase order being allocated to a different product or should be in your bank account being reserved and allocated for that next channel that you're going to open or that existing channel you need to increase spend on. (21:23): So understanding before you buy, as you're getting into that product, what is the life cycle relative to when you're launching it, how long are you going to keep it at full price? Maybe that is the entirety of it. Maybe you do not discount on your website, but having back channel ways to not liquidate necessarily, but being able to find other means to turn that back into cash is incredibly valuable. And that's what we help a lot of businesses with is we'll step in, we'll do an audit, we'll understand inventory profile, we'll understand demand for that inventory. And oftentimes those two are disjointed. They have way less inventory relative to what they're selling percentage wise. And we'll look to take that other chunk and understand what other opportunities are there working with wholesale partners, retail partners at first to understand have we entertained those types of conversations? (22:20): Can we get these into stores? Maybe we give the retailer a bigger discount so they'll take it on. The MSRP stays the same in their store, but they're willing to take more because their margin is higher. It also becomes another opportunity to spread awareness. And then all the way down to what does liquidation look like? What are those channels? How do you do that logically? How do you do that without diminishing the brand and how do you set up that structure so it is the out, it is the fallback, it is not the every time. So with that, understanding how we reset benchmarks, how we understand go to market the next time and do a better job of that so this isn't something that you're always acting on. Izzy Rosenzweig (23:05): It's never been easier to start a business. You got Shopify, you got Meta, Portless is a little part of that ecosystem to go fast. But what's scary is that because it's so easy, people don't have the time or the thought to even plan for it. And all these things go wrong once you hit one, two, three million bucks. And what you're saying is like, no, every decision happens upfront. Marketing is in the room, supply chain's room. When are we going to liquidate? How are we going to liquidate? I just think this is such a fundamental part of every great business that could really get past the hard parts needs someone like you and Greg in the room, which is just so awesome to kind of hear how you guys frame these conversations. Sean Christman (23:45): It's constant scenario planning and it's not offsite, get in a room for three days. Let's understand it to the end degree, every single outcome that could be possible, but let's understand what are all of the scenarios that could take place. And if you're constantly doing that, you find yourself in a rhythm of understanding downside as much as you want to focus on the upside opportunity, you won't get caught flatfooted and you'll be able to act quicker. You'll have relationships established. You'll be able to spot things of your business slipping and missing targets within a product category or things like that. And you won't find yourself ending a season with too much of the wrong stuff with no means to be able to get out of it. Izzy Rosenzweig (24:29): Yeah. Downside planning will keep you alive because no one could predict the future and usually founders and operators and entrepreneurs, very optimistic, but the real world isn't always as equally optimistic, right? Reality at some point kicks in. Sean Christman (24:43): You have to be optimistic without - A Izzy Rosenzweig (24:45): Little crazy and a little optimistic, I would say. Sean Christman (24:48): Exactly, exactly. Yeah. We wouldn't be in this business if we weren't a little bit crazy. Izzy Rosenzweig (24:52): 100%. You mentioned terms with factories and I'm always fascinated about that. Have you been able to successfully negotiate any decent level of terms with factories? Because factories, once you have their goods, you left the country, how are they collecting? Is it a relationship game? How do you de-risk it for them? How do those conversations go? Sean Christman (25:12): It's completely a relationship game. For most of these brands, again, outside of Meta, your number one capital allocation partner is your vendor, but a lot of brands don't think about them as a partner. It is a means to an end. It is somebody that I can churn. I can go find another one. I have all of the leverage. It's understanding how you can work within that relationship to make it truly a partnership. What does that look like? Transparency is key. Inviting them in to the understanding of how you are going to operate as a business, understanding oftentimes even today, what e-commerce is and what are your means of distribution, having those conversations with your partner. And then the biggest is forecasting, providing them with a forecast. What that gives them, nice big round numbers, not forecasting out to the individual unit what you are going to buy and deliver 12 months from now, but giving them a peek inside where your business is going. (26:17): That conversation, not only does that give a nice big round number, a ticket where they can take that to their team and say, "Hey, look at this brand, what they're going to do over the next 12 months," but it opens up a conversation that happens on a monthly basis. "Hey, we're growing. We're growing faster. We need more units. Are there opportunities? "And that's what not only opens up the terms conversation, but opens up margin and cogs conversation. On the terms side, it truly is that transparency of cash conversion. Hey, you're not giving them exact numbers, you're not handing over your P&L, but you're having that conversation with them of the cost of growth and how they can enable or conflict with your growth. They want you to grow. They want to grow along with you. And being able to have that conversation of," Yes, I'm 50% deposit today. (27:11): I understand why. I'm 50% by the time it exits the factory. I'm a hundred percent paid a week to two months before I ever sell one of those. Here's how that's hindering these next POs that I'm about to send you over the course of the next half year. "If we're able to open up this conversation, if we're able to eliminate that deposit, if we're able to find some net terms on the back end of this thing, here's how this number, this nice round number, it increases by double or triples just by having that conversation. And what you'll find is they'll be reluctant to have that conversation. They're great at these. They get them all the time. They expect them to come is maybe the biggest key insight is they know at some point you're going to ask. It's a matter of finding what's valuable to them that aligns with what's valuable to you and being able to work that number out. (28:09): And so yeah, it's a partnership game. It's built on trust. It's built on paying on time. If they're fronting you 90 days, 60 days, 30 days, it's paying on time and making sure that you're consistent with that and then continuing to communicate, continuing to be transparent about how much before you're able to negotiate terms, how much it'll help you. And then when you do negotiate terms, how much is it helping you? So yeah, we have a lot of success there. It's one of the first conversations I have with any of our partner vendors is where are we terms wise? What is it going to take to increase these more favorable for the brand? And then we start to hit some of those bullet points of where are you going? How much are you going to do and why? Izzy Rosenzweig (28:55): Love it. And I think really where Proper Growth is coming in and really where I see the market has been going consistently since the early arbitrage meta days where it was stupid money is really doing things in a healthy and profitable way. And I think that has been the best thing for the industry. I think it took a little bit of a hit after COVID and after venture shifted from brands to, let's call it tech infrastructure. But I think what you're doing to help brands to be more thoughtful, it's never been a better time. It's not like they're hiring you full-time. It's a fractional partner that can help the fundamentals of your business, and that's the difference between going bankrupt or actually being very successful. So I am huge, huge advocate. Let's do little predictions. Everything's evolving and I think what you said, I fundamentally believe, which is we're not AI rappers, we live in atoms, we're not pixel businesses, we're admin businesses, meaning you have to still manufacture and produce and create forecasting properly, et cetera. (29:52): But do you see an area that either you guys use or suggest the brands you can sell with, what are the areas of AI that could really make an impact? Or let's say over the next five years could really make a big deal as companies grow. Sean Christman (30:04): The way I think about AI is changing. To start, it was, wow, look at all these administrative things that it can help solve. Get into add a chat and into agents and look at all of this backend effort that can be solved through AI. That's the first step. Understanding how you can take some administrative burden to increase decision making power within your business. The way that I'm moving towards thinking is if it is as good as we feel that it is, it should be helping you make more impactful decisions within your business. I'll take product. Product is a space where AI can help a ton. It can help with modeling out the fit for your product, the specs for your product, packaging, making sure it's seamlessly integrated across vendors. It just allows you to have access to what used to be a team member that you needed to hire to come in and be able to help design a lot of this stuff and engineer to be able to help put together a more favorable package size to align with shipping requirements. (31:13): And so bringing that more forward into product and extending that into your supply chain is possible today. It's just going to become more prevalent. And again, what we do is we attack margin. We find areas where more money is in your pocket to be able to deploy. That's a great opportunity to not only avoid fixed costs, bringing fixed costs into your business in the form of overhead, but also a way to take back time. How do we eliminate a sample in the process? How do we eliminate defects throughout production? How do we get a better product faster? AI is already helping there. It's going to continue to help there in a huge way. Izzy Rosenzweig (31:54): Absolutely love it. Sean, where could people learn more about Proper Growth, follow you and just get educated on what you do and reach out potentially? Sean Christman (32:02): Propergrowth.co, on there you can find where to find Greg and I. We're both on X, we're both on LinkedIn, we post on there. We're talking about topics like this. And we also do a weekly newsletter where we do a deep dive on these similar topics. So what we look to do is not just rest on all of our experience. We look to live in the space, understand how brands are solving problems now. So we do that with our clients and no strings attached. Reach out to us, let's have a call, let's chat. We help folks that we don't work with work through problems all the time. There's a ton of brands, but the space is small and we just want to be a support function within that. Izzy Rosenzweig (32:42): Sean, thank you so much for being on the podcast. Really appreciate it. I would advise really anyone running a brand, again, I see this, I see hundreds of brands that in the early days it's easy, it gets hard quickly. And if you don't add operation thoughtfulness and finance together in the earlier days, higher chances you start breaking as you're scaling. So Sean, thank you so much for being on the podcast. Sean Christman (33:06): Of course. Thanks for having me, Izzy. Anytime. Izzy Rosenzweig (33:12): Thank you for listening to The Modern Supply Chain. If you have questions about anything we talked about, you can find me on LinkedIn. And if you're interested in learning more about Portless, check out our website, portless.com. As always, hit that follow button so you don't miss an episode. See you next time.