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The DTC Founders guide to Using Debt as a Growth Tool · Scalability School

• 1:00:00
  You always have to start with the math,
• 1:00:01
  which is I'm going to try
• 1:00:02
  and sell a product online
• 1:00:03
  and I'm going to use Facebook ads. I can
• 1:00:05
  assume two things. When
• 1:00:06
  EPCs will likely be around $2,
• 1:00:08
  potentially could be up to five as of
• 1:00:10
  recently. Depending on what category
• 1:00:12
  you're in, if you're
• 1:00:13
  in health and wellness, you might see
• 1:00:14
  some pretty high spikes. And then you
• 1:00:15
  have a rough ballpark
• 1:00:16
  of conversion rate, 3% to 6%, 7%. And you
• 1:00:19
  use those two metrics to
• 1:00:20
  determine what your cost
• 1:00:22
  per acquisition is going to be. So in
• 1:00:23
  this example I just used, the
• 1:00:24
  reason that founders ads work a
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  lot of the time is because it's the
• 1:00:27
  founder talking about the problem that
• 1:00:28
  they solve for themselves.
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  And it's a meaningful thing. And it's
• 1:00:32
  really hard to make a
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  founder ad that works. If you just
• 1:00:34
  went on Alibaba and knock something off,
• 1:00:36
  I'm sure there's plenty of
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  dropshippers that are printing
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  money and they don't actually do anything
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  novel or they're stealing
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  somebody else's IP, probably mine.
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  Taking on debt, it's just like anything
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  else, right? When you
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  do in your business that
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  if it's a short term fix and there's not
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  a plan of how that will be avoided,
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  then it's a band-aid and that's going to
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  be something that you're
• 1:00:53
  going to lean on and it's
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  not a good thing. It's like you need a
• 1:00:56
  plan for how you aren't
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  going to necessarily need
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  this short term stuff. Between the two of
• 1:01:00
  us and then hiring these
• 1:01:02
  kind of fractional CFOs,
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  we were able to build something that was
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  definitely more robust than what a brand
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  at only a million dollars in revenue had
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  done. And I kind of knew
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  that I needed to impress them
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  to the point that I knew exactly what I
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  was doing, which is why I
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  was asking for more money,
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  maybe than a brand should at only a
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  million dollars in revenue.
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  And now let's take a listen to the
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  Scalability School podcast.
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  [MUSIC]
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  Lots of good stuff that we've got going
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  today. Talking about using
• 1:01:32
  debt to grow on this episode.
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  Super stoked to talk about it as always.
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  Very excited. Zach and
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  Brad, what's going on, guys?
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  I think I say live in the dream like
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  every other episode.
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  I was going to say, just keep that going.
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  Just keep that going.
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  Just keep that going. Let's just throw that in
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  GPT and get a couple of...
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  Let's put beefs at the front of the show
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  and talk about Zach's tweet
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  about the playbook that
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  everybody needs to follow.
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  Yeah.
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  Who are we flaming today? Do you want me
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  to read it back to you?
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  Or do you just want to rip?
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  We can just start by me just seeing
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  things on Twitter that are
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  ex-Homestike clients that are
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  just being obnoxious. And then that
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  usually prompts me to
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  fire off a, I don't know,
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  10,000 character to eat at like seven in
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  the morning the second I wake up,
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  which is what I did today. So yeah, I was
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  just talking about
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  the fundamentals of D2C,
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  which I feel like are fairly
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  straightforward. A lot of
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  people talk about a lot,
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  but that's what I
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  tweeted about this morning.
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  You know, it's really interesting. I
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  don't remember where...
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  I feel like this idea of founder ads
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  keeps coming up and
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  people keep talking about it.
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  And literally your first point in this
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  tweet is like, "Here's the playbook.
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  Sell a product that solves a problem."
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  And the reason that founders ads work a
• 1:02:33
  lot of the time is
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  because it's the founder talking
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  about the problem that they solve for
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  themselves. And it's a meaningful thing.
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  And it's really hard to make a founder ad
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  that works if you just
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  went on Alibaba and knocked
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  something off. Those work. Don't get me
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  wrong. I'm sure there's plenty of
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  dropshippers that are
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  printing money and they don't actually do
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  anything novel or they're
• 1:02:50
  stealing somebody else's IP,
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  probably mine. I just... Yeah, I don't
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  know. I think a lot about
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  that because it's been a
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  recurring theme I've seen.
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  I just think that the easiest win that
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  you have in this whole D2C
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  ecom thing is just solving a
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  problem and just making it abundantly
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  clear what problem you
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  solve and how you've done that.
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  If you're just trying to sell whatever.
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  If we were just a hollow socks, just
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  selling cotton socks,
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  what problem do I solve? I don't know.
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  They look cool. It's
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  just really hard to win
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  in 2025 when you're just trying to be
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  another one of a thousand
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  brands selling the same old
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  shit. So that to me is the fundamental
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  start there. Boom. Solve
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  a problem. Make sure the
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  product solves a problem. Make sure you
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  can talk about solving the problem.
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  And then I go through a bunch of stuff,
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  which I mean, if we want to
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  riff through this, we can.
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  But this is basically me just coming off
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  of seeing people
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  complaining and basically saying
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  that they deserve things to happen and
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  performance to happen. And
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  when nothing changes about their
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  business and they don't listen to smart
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  people who are giving them
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  advice, that's been proven
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  time and time again. Well, why don't we?
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  Why don't we have
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  highlights of the of this? Like,
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  why don't we hit some of the pieces that
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  people have engaged on that
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  you feel like are the parts
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  that people really wanted to get into? I
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  mean, obviously, too many
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  people don't know the numbers
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  that obviously goes into today's episode
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  talking about using debt to
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  grow totally starting with
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  the math of just like how you're going to
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  like sell your product.
• 1:04:08
  You always have to start with
• 1:04:09
  the math, which is I'm going to try and
• 1:04:12
  sell a product online and
• 1:04:13
  I'm going to use Facebook ads.
• 1:04:14
  I can assume two things when the PCs will
• 1:04:16
  likely be around $2
• 1:04:18
  potentially could be up to five.
• 1:04:19
  As of like recently, depending on what
• 1:04:21
  category you're in, if you're like in
• 1:04:23
  health and wellness,
• 1:04:23
  you might see some pretty high spikes.
• 1:04:25
  And then you have a rough ballpark of
• 1:04:27
  conversion rate, 3 to 6, 7%. And you use
• 1:04:30
  those two metrics to
• 1:04:31
  determine what your cost per
• 1:04:32
  acquisition is going to be. So in this
• 1:04:34
  example, I just used your
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  goal should be to have 100 plus
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  AOV if you're selling a one-time purchase
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  product, unless you're selling
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  subscription or a product
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  that has a high return customer rate. And
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  on that, you can probably
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  expect a $50 new customer CPA
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  in 2025 with a $2 CPC and a 4% conversion
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  rate. So that's how we back
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  into all that math. And I'm
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  like, you just have to start by
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  understanding that because there's so
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  many brands that start or
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  they're a few million dollars in revenue
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  and they're like, why
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  can't I scale? Well, your math
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  just doesn't work. You're selling a
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  product or even selling a bundle of
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  products and it's like
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  60 bucks. But to get a CPA that would
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  work for a $60 AOV is just too hard to
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  do. So starting with
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  that math and understanding what's
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  realistic there, I think is really
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  important. The landed
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  margin of 60 plus percent is so
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  important. People do not think about that
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  also. It's like, okay,
• 1:05:23
  I think about my cost of delivery, maybe
• 1:05:25
  you're ordering product
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  or not even cost delivery.
• 1:05:27
  You're thinking about your COGS, cost of
• 1:05:29
  goods sold. And you're
• 1:05:30
  thinking about, oh, this is what
• 1:05:31
  my product is going to cost from China or
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  I can order more and get my
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  COGS down. What you're not
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  taking into consideration is your
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  pick-pack fees, your shipping to the
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  customer. If you're shipping
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  out of the country, if you're trying to
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  scale to maybe Canada or somewhere else,
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  EU, Australia, what is that impact going
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  to be? I think the other
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  thing too is people will do
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  things on their website, turn products
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  into bundles, but then
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  not think about what their
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  fulfillment team, their 3PL is going to
• 1:05:55
  now charge them to do a
• 1:05:56
  bundle because now there's
• 1:05:57
  more products included. All of that math
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  is important to
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  understand before you're like,
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  hey, I have this thing that I think can
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  work. I think just starting
• 1:06:04
  there as a baseline of 60%
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  margin left over after that product or
• 1:06:09
  products have landed at
• 1:06:10
  your customer's door should be
• 1:06:11
  your target. And if you're not there, you
• 1:06:13
  probably need to
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  charge more for your product
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  or bundle more things to create a bigger
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  piece of margin for you.
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  The other stuff here, I think that's
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  really interesting is
• 1:06:21
  keeping your product selection
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  simple. We've seen this time and time
• 1:06:24
  again. Anyone that's run
• 1:06:25
  an agency has worked with a
• 1:06:26
  brand that has way too many SKUs and then
• 1:06:27
  they just fall off because
• 1:06:28
  they just get buried with
• 1:06:30
  so many dead SKUs. Don't know what to do
• 1:06:32
  with. And that's where all
• 1:06:33
  their cash ends up sitting
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  is just in dead inventory.
• 1:06:35
  That was one. What else here?
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  Can I ask about the
• 1:06:38
  margin thing really quick?
• 1:06:39
  Maybe not ask, but just dig into it a
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  little bit deeper. But
• 1:06:43
  thinking about when we had a whole
• 1:06:45
  offer or a whole offer episode, which I
• 1:06:47
  think is valuable to dig
• 1:06:49
  back into. But quick TLDR.
• 1:06:53
  If you aren't at that point, what are you
• 1:06:55
  doing first? Are you
• 1:06:56
  saying, "Okay, great. I have 50%
• 1:06:58
  margin. Am I going and am I yelling at my
• 1:07:00
  supplier and trying to make
• 1:07:02
  it cheaper? Am I asking what
• 1:07:03
  volume I need to get to to get to those
• 1:07:05
  points?" Okay, so that's one
• 1:07:06
  thing you could do. You can
• 1:07:07
  raise your prices, but are you going and
• 1:07:09
  looking at the market? Or
• 1:07:10
  are you just saying, "No,
• 1:07:11
  this is what I need in order for this to
• 1:07:13
  work. I just have to figure
• 1:07:14
  out how to position it in a
• 1:07:15
  way that people value it at this price?"
• 1:07:16
  And then three, on the
• 1:07:18
  point of shipping, I suppose you
• 1:07:20
  could always just charge shipping and
• 1:07:21
  test that out. But what's
• 1:07:22
  your order of operations working
• 1:07:23
  through that? Yeah, it's initially
• 1:07:25
  starting with just all of the moving
• 1:07:26
  pieces that goes into the
• 1:07:27
  cost before I even talk about changing
• 1:07:29
  the price. Changing the price comes last.
• 1:07:31
  So it's like negotiating with
• 1:07:33
  manufacturers, negotiating with 3PLs,
• 1:07:35
  negotiating with your
• 1:07:36
  FedEx or whoever you're shipping with. We
• 1:07:37
  just moved from US Postal Service,
• 1:07:40
  which was traditionally the lowest cost
• 1:07:41
  of shipping for one of
• 1:07:42
  our brands, to Amazon.
• 1:07:44
  Like, I don't know. This is a new thing
• 1:07:45
  that they wrote down. It's
• 1:07:46
  like Amazon Prime shipping.
• 1:07:47
  They'll come to our warehouse, pick up
• 1:07:48
  big Amazon truck and pick up
• 1:07:49
  every order that used to be US
• 1:07:51
  Postal Service. We're saving $1.50 per
• 1:07:53
  order delivered at the
• 1:07:54
  customer store. That over volume
• 1:07:56
  can add up to be real dollars. So yeah,
• 1:07:59
  all of those things can be
• 1:08:00
  negotiated. That's the thing
• 1:08:01
  I keep sending this meme of this random
• 1:08:05
  guy that just says,
• 1:08:06
  "Everything can be negotiated."
• 1:08:07
  Just keep putting it in Slack. It's in
• 1:08:09
  the partnerships channel
• 1:08:11
  and whitelisting channel.
• 1:08:13
  It's in the ops channel. It's in the
• 1:08:15
  product channel. It's in
• 1:08:16
  everywhere. It's in any agency
• 1:08:17
  that we hire, I'm like, "Go negotiate."
• 1:08:19
  So I think if you're not doing those
• 1:08:20
  things, you got to be a
• 1:08:21
  little bit more of a hard ass and go do
• 1:08:22
  that first. Then it's
• 1:08:24
  pricing. Then it's seeing what's
• 1:08:26
  possible. Yeah, that's where I started.
• 1:08:28
  That's where I think you
• 1:08:28
  have to start. But there's so
• 1:08:30
  many little things that people are like,
• 1:08:31
  "My 3PL charges $3 per
• 1:08:33
  order." That's what they say.
• 1:08:35
  Go ask them to do $2.50. They're right.
• 1:08:38
  Everything is negotiable. Say,
• 1:08:40
  "Hey, this is where my volume
• 1:08:41
  is at now. If we can get it down to
• 1:08:43
  $2.50, I think I can get my volume to
• 1:08:44
  here," which means more
• 1:08:45
  dollars in your pocket at the end of the
• 1:08:46
  day. But if I'm stuck by
• 1:08:47
  losing $0.50 per order,
• 1:08:49
  that might just be the little bit of
• 1:08:50
  nugget that I need to go
• 1:08:51
  push a little bit harder.
• 1:08:52
  Yeah, I think it's an important point
• 1:08:53
  because you're not trying to be a shit
• 1:08:55
  partner by asking for better-- Totally.
• 1:08:57
  You're not trying to be a dick. You're
• 1:08:58
  just trying to get better
• 1:08:58
  margins so you can run a
• 1:09:00
  business that will support their
• 1:09:01
  business. Right. And again, this will go
• 1:09:03
  into the episode, but
• 1:09:04
  building models of what could be if you
• 1:09:07
  get better margin across
• 1:09:08
  all of your partners is
• 1:09:09
  what's going to help at the end of the
• 1:09:10
  day. So that was a big one.
• 1:09:12
  And then the offshore talent
• 1:09:13
  for building creative teams out, I think
• 1:09:15
  that we've learned a ton.
• 1:09:16
  Easy Street and our portfolio now
• 1:09:18
  of like, we're just going to hire
• 1:09:19
  creative strategists,
• 1:09:21
  designers, editors. This took me
• 1:09:23
  years of Brad just absolutely hammering
• 1:09:25
  me and saying, "You're an
• 1:09:26
  idiot. Why aren't you doing
• 1:09:27
  this?" But finally, it's set in this
• 1:09:28
  year. But now we have a team of creative
• 1:09:32
  team members on each
• 1:09:34
  brand between creative strategists,
• 1:09:36
  editors, designers. And that
• 1:09:38
  total cost is, we're talking
• 1:09:40
  maybe $25,000 a month to have seven
• 1:09:43
  amazing, incredible
• 1:09:44
  people. Might not even be 25. So
• 1:09:46
  that was a big one that a lot of people
• 1:09:47
  ask questions about was
• 1:09:48
  like, "How do you go about
• 1:09:49
  doing that? How do you think about it?"
• 1:09:52
  And my answer, which is
• 1:09:52
  one that I normally hate,
• 1:09:55
  is go look at big creative agencies and
• 1:09:57
  go poach their people off
• 1:09:58
  of LinkedIn. Don't do that to
• 1:09:59
  Homestead. But if they're a big creative
• 1:10:01
  agency that has 500
• 1:10:03
  employees and a bunch of people in
• 1:10:05
  the Philippines or Central America,
• 1:10:07
  that's a good starting point.
• 1:10:09
  All super good tips. I think
• 1:10:10
  we're just talking about negotiating with
• 1:10:12
  influencers. So yeah, I
• 1:10:13
  agree a lot can be negotiated. I
• 1:10:15
  think that's a huge point. And I think
• 1:10:16
  knowing the numbers is a
• 1:10:17
  good one. And per usual, you put
• 1:10:19
  something out on X, dude, the crowd
• 1:10:21
  absolutely loves it. Sitting
• 1:10:23
  at 10.5K views, not even 12
• 1:10:27
  hours in. Yeah, it's pretty soft. I put
• 1:10:30
  out a lot of stuff,
• 1:10:31
  absolute fricking crickets from the
• 1:10:34
  Foxwell machine. Nobody cares at all. But
• 1:10:37
  I did get a text yesterday
• 1:10:39
  from a guy I hadn't spoken
• 1:10:40
  to in a long time who was driving down
• 1:10:43
  the 405 in LA listening to
• 1:10:45
  our podcast in his cyber truck.
• 1:10:48
  So shout out to you listener, you know
• 1:10:50
  who you are. Thank you.
• 1:10:52
  Our numbers continue to climb
• 1:10:53
  into the high tens. So super stoked to
• 1:10:56
  have all of you checking
• 1:10:57
  things out and listening. And we
• 1:10:59
  can definitely beef on some stuff as the
• 1:11:00
  show goes on as well. But
• 1:11:01
  let's get into talking about
• 1:11:03
  the debt and how you used debt or how you
• 1:11:07
  use debt to grow, right using
• 1:11:09
  debt and inventory financing
• 1:11:10
  as a tool for smart, scalable growth. So
• 1:11:14
  I'm just going to start off by asking why
• 1:11:18
  did Hollow choose to use debt when you
• 1:11:21
  guys started this? Yeah, so the story of
• 1:11:24
  Hollow is basically we
• 1:11:26
  kicked off the brand actually six years
• 1:11:28
  ago, it started as a
• 1:11:29
  slightly different name, it's called
• 1:11:30
  Follow Hollow. They don't talk about this
• 1:11:32
  part very frequently, but
• 1:11:33
  I'll kind of tell the whole
• 1:11:34
  story now. Started as rank of Follow
• 1:11:36
  Hollow, my co-founder Brian is an
• 1:11:37
  inventor through and through
• 1:11:39
  he's an entrepreneur, but an inventor at
• 1:11:41
  the end of the day, and he
• 1:11:42
  had this idea to do these socks.
• 1:11:43
  And so it kicked off as an actual
• 1:11:45
  Kickstarter. I think we did a few hundred
• 1:11:47
  thousand in revenue,
• 1:11:48
  I can't remember exactly, but there were
• 1:11:50
  like 150, I can't remember
• 1:11:51
  what it was. But we started with
• 1:11:52
  that. And that kind of is really where
• 1:11:54
  there was a little bit of
• 1:11:56
  product market fit originally.
• 1:11:58
  And then he was in charge of running the
• 1:12:00
  brand for the first year.
• 1:12:01
  And then a few years into
• 1:12:02
  Homestead, I made the decision to say,
• 1:12:03
  "Hey, I actually really
• 1:12:04
  want to put a ton of attention
• 1:12:05
  on the brand side versus just being on
• 1:12:07
  the agency side." That's
• 1:12:08
  when I took over and that's
• 1:12:09
  when I rebranded it to just Hollow. I
• 1:12:11
  kind of got rid of some of
• 1:12:12
  the coloring of the product and
• 1:12:14
  just really simplified it down to just
• 1:12:15
  being a few skus and just
• 1:12:17
  black and gray. And in that first
• 1:12:19
  year, between Brian and I think we put in
• 1:12:21
  like 50 grand to buy
• 1:12:23
  inventory. And on that 50 grand of
• 1:12:25
  the inventory, that was about $300,000 of
• 1:12:27
  products, retail price. And that first,
• 1:12:31
  this was like a three
• 1:12:32
  month period of time. We went to market.
• 1:12:34
  I've talked about this a
• 1:12:35
  million times. We tried a
• 1:12:35
  bunch of different cohorts. We found this
• 1:12:37
  hunting angle and these
• 1:12:38
  static ads and it ripped. And we
• 1:12:39
  sold all $300,000 worth of product in
• 1:12:41
  like 90 days. We zeroed 100K in revenue
• 1:12:43
  in the first 30 days.
• 1:12:45
  From there, it was kind of up to us to
• 1:12:47
  say, "Okay, we did
• 1:12:48
  $300,000 of revenue in a short
• 1:12:50
  period of time. We sold everything. We
• 1:12:52
  were profitable during
• 1:12:53
  that period of time." And
• 1:12:54
  it was like, "Okay, we put in 50 and we
• 1:12:56
  got back out like 110
• 1:12:57
  or something like that,
• 1:12:58
  or 120." We're like, "Okay, how many
• 1:13:00
  socks can we buy for 120 grand
• 1:13:01
  now?" And that was really it.
• 1:13:03
  That was all that we really knew what to
• 1:13:04
  do. It was just like,
• 1:13:05
  "Okay, put all the money back in,
• 1:13:06
  let's go buy some more socks." And that
• 1:13:08
  120 grand got us enough
• 1:13:09
  socks to push into that next year
• 1:13:14
  and push through summer. And it was about
• 1:13:16
  like mid summer where
• 1:13:18
  we decided to say, "Okay,
• 1:13:19
  this is working. We think this can work,
• 1:13:21
  but we need to put in a
• 1:13:21
  little more cash." And that's
• 1:13:22
  when I think we injected a little bit
• 1:13:24
  more cash into the
• 1:13:24
  business, maybe like 50 to 100 grand
• 1:13:26
  between Brian and I. So now we're at
• 1:13:28
  like, I don't know, $1
• 1:13:29
  million invested in. And with that
• 1:13:31
  $1 million, we're able to buy enough
• 1:13:33
  socks to do just over $1
• 1:13:34
  million worth of revenue at this
• 1:13:36
  point. And that's exactly what we did. We
• 1:13:38
  did $1 million in that
• 1:13:39
  first year. It was like $1.1
• 1:13:40
  million. We sold every sock that we
• 1:13:43
  basically had. I think we
• 1:13:44
  were down to literally like
• 1:13:44
  10 units left. And that was true product
• 1:13:47
  market fit. We're like,
• 1:13:48
  "Okay, we did $1 million in our
• 1:13:49
  first official 12 months with this
• 1:13:51
  business, even though technically there
• 1:13:53
  were previous years."
• 1:13:54
  But with Holo, the brand, and we want to
• 1:13:57
  push up. And now it's like,
• 1:13:59
  "Okay, we need more money.
• 1:14:01
  We need to figure something out." So debt
• 1:14:04
  was really the only
• 1:14:04
  option that we had unless we
• 1:14:05
  wanted to go the equity route. And Brian
• 1:14:07
  and I were both pretty
• 1:14:08
  convinced that this thing
• 1:14:09
  could be much bigger than where it was
• 1:14:10
  with just a million dollar
• 1:14:11
  business. We didn't really know
• 1:14:12
  how to value it at that point. We were
• 1:14:14
  like, "Is it worth a
• 1:14:15
  million dollars? Is it worth $10
• 1:14:16
  million? How do we value this? We weren't
• 1:14:18
  sure." So debt was our
• 1:14:19
  only option. And that's what
• 1:14:21
  started this whole trajectory of like,
• 1:14:23
  "We want to grow this
• 1:14:24
  business. We need to buy more socks.
• 1:14:25
  We can go equity. We can go debt." And we
• 1:14:27
  wanted to stick with keeping owning it.
• 1:14:29
  And so we went debt.
• 1:14:30
  And that's what teed up all of this. Was
• 1:14:33
  it purely based on like, "I literally
• 1:14:34
  just need to have more
• 1:14:35
  in stock because I can only buy X amount
• 1:14:38
  right now. That's going to
• 1:14:38
  last me two months at our
• 1:14:40
  current growth rate. So I could do that
• 1:14:42
  and I could do this way
• 1:14:43
  slower. Or I could get debt
• 1:14:45
  because I know my whatever the financial
• 1:14:47
  term is cash on cash return,
• 1:14:48
  something like that. Return
• 1:14:49
  on invested capital or another who will
• 1:14:51
  be paying off faster." Yeah, I mean, I
• 1:14:53
  think the honest part
• 1:14:53
  of this is like I was running Homestead
• 1:14:55
  still during this time. And
• 1:14:57
  we were working with brands
• 1:14:58
  like Hexclad. And Hexclad grew, I think
• 1:15:00
  that same year that we did our first
• 1:15:02
  million Hexclad grew
• 1:15:03
  by like 50 million, 100 million. I don't
• 1:15:05
  remember. It was the first
• 1:15:06
  year they grew by 50 and then the
• 1:15:07
  next one they grew by 100. So I'm like
• 1:15:09
  pushing buttons and ad
• 1:15:10
  accounts working with our team,
• 1:15:12
  seeing brands grow 100 million and we
• 1:15:14
  grew a million. I'm like,
• 1:15:14
  "Okay, I know I can do this
• 1:15:16
  shit. I think I have the playbook figured
• 1:15:18
  out. We have a little
• 1:15:19
  bit of track record."
• 1:15:20
  But I wasn't sitting on a ton of cash.
• 1:15:22
  Brian wasn't sitting on a
• 1:15:23
  ton of cash that he wanted
• 1:15:23
  to invest in yet because it was still a
• 1:15:24
  little risky because it
• 1:15:25
  was still new. And so we were
• 1:15:27
  like, "Okay, yeah, the return on capital
• 1:15:28
  wasn't enough for us to push
• 1:15:29
  up as fast as what I really
• 1:15:31
  wanted to grow at." That was really it
• 1:15:34
  was we wanted to grow
• 1:15:35
  faster than what we could even
• 1:15:36
  do on our own. And the two options that
• 1:15:39
  we had was go bring in
• 1:15:40
  investors or go get debt.
• 1:15:42
  So you're sitting down, you're looking at
• 1:15:46
  this, you're thinking about
• 1:15:47
  this. One thing that I think
• 1:15:48
  you always do really well is talk to a
• 1:15:50
  bunch of different people in a lot of
• 1:15:51
  different places and
• 1:15:51
  get their opinion. When did this shift
• 1:15:54
  and what was it that shifted
• 1:15:55
  in you that you saw debt as an
• 1:15:57
  investment tool? Because clearly there
• 1:15:59
  was this delineation that happened.
• 1:16:01
  Totally. Yeah, I think it was the fact
• 1:16:02
  that we could put a dollar into the
• 1:16:04
  Facebook machine and
• 1:16:05
  see like three to four dollars out pretty
• 1:16:07
  automatically without
• 1:16:08
  having a ton of other
• 1:16:09
  resources. Because you had confidence in
• 1:16:12
  your marketing abilities.
• 1:16:13
  Correct. Yeah. And I think that the debt
• 1:16:15
  as a tool became just it
• 1:16:17
  was new knowledge to me,
• 1:16:18
  to be honest. It's not like I had all
• 1:16:19
  this pre-existing
• 1:16:20
  knowledge. I was running an agency
• 1:16:22
  before that. It's basically just cashflow
• 1:16:24
  business. I had no
• 1:16:25
  knowledge of the debt side of it.
• 1:16:27
  But what I did know is that we had
• 1:16:28
  clients like Hexglad that
• 1:16:29
  would get debt. They were working
• 1:16:30
  with JP Morgan at the time and they were
• 1:16:32
  using debt to grow their
• 1:16:33
  business because they had a
• 1:16:34
  proven model that basically backed out to
• 1:16:37
  say if I put a dollar in,
• 1:16:38
  I can get three to four or
• 1:16:39
  five dollars out and we're just going to
• 1:16:41
  do that over and over again
• 1:16:42
  and we can pay this money back
• 1:16:43
  to this bank. So I think it was
• 1:16:46
  confidence that came from a lot of the
• 1:16:48
  work that we're doing for
• 1:16:49
  our clients at the time and me having
• 1:16:51
  confidence that we actually cracked a
• 1:16:52
  funnel for this brand
• 1:16:53
  that I think could be much bigger. So you
• 1:16:55
  go through this, you have
• 1:16:57
  this mindset shift. You're
• 1:16:58
  talking to them. Okay, now we're going to
• 1:17:01
  do debt. You're talking to potential
• 1:17:02
  lenders and whatever.
• 1:17:03
  How do you convince lenders that you... I
• 1:17:10
  mean, you're a young business.
• 1:17:11
  Million in revenue, right? How do you
• 1:17:15
  convince them that
• 1:17:15
  you're worth lending to?
• 1:17:17
  This episode is brought to you by Brad's
• 1:17:19
  company, Work Marketing.
• 1:17:21
  If you need a D2C marketing
• 1:17:22
  agency, let me tell you Homestead is
• 1:17:25
  great, but work marketing is also
• 1:17:27
  fantastic. And let me tell
• 1:17:29
  you, you aren't going to find friendlier
• 1:17:31
  people out there in the
• 1:17:34
  e-commerce space. So we decided
• 1:17:36
  to do these little ads for each other's
• 1:17:38
  companies. So hopefully you find it
• 1:17:39
  interesting, but seriously,
• 1:17:40
  great team at work marketing, very smart.
• 1:17:43
  Brad and Jordan are
• 1:17:44
  incredibly dialed in. I just gave
• 1:17:46
  them a lead. I already made this brand
• 1:17:48
  that I gave them. I don't even know,
• 1:17:50
  double revenue that they
• 1:17:52
  had in the previous month or something.
• 1:17:54
  So it's very exciting to be
• 1:17:57
  connected with Brad. And if
• 1:17:58
  you need a great agency, there's really
• 1:18:00
  no one better. Zach, if
• 1:18:01
  you want an agency that cares
• 1:18:03
  about your business much more than they
• 1:18:05
  care about their own
• 1:18:05
  website, I just tried to load
• 1:18:07
  workmarketing.com and it was broken. So
• 1:18:09
  they're definitely going to
• 1:18:10
  give more of a shit about your
• 1:18:11
  business than their own. So I highly
• 1:18:13
  recommend Brad and the team over at work.
• 1:18:15
  They've been incredible.
• 1:18:16
  We've referred a lot of business over to
• 1:18:18
  them as well. Really, really
• 1:18:19
  good as far as like cracking
• 1:18:20
  funnels and figuring out like rapid
• 1:18:22
  growth for brands. So
• 1:18:23
  I recommend these guys.
• 1:18:25
  How do you convince lenders that you... I
• 1:18:30
  mean, you're a young business.
• 1:18:32
  Million in revenue, right? So how do you
• 1:18:35
  convince them that
• 1:18:35
  you're worth lending to?
• 1:18:37
  Totally. So this is where I do have to
• 1:18:39
  say, I have to give the
• 1:18:41
  disclaimer of I had Homestead.
• 1:18:44
  So we had this track record of helping
• 1:18:46
  brands grow for years
• 1:18:48
  already at this point. We took a
• 1:18:49
  couple of clients from like, we had one
• 1:18:50
  case study. We took a brand from 50K a
• 1:18:53
  month to 2 million a
• 1:18:53
  month in like 90 days. And so we had some
• 1:18:56
  of these and then some of
• 1:18:57
  the bigger ones like Hexclaude
• 1:18:58
  at this point was a client. And so when
• 1:19:00
  I'm talking to these like
• 1:19:01
  lenders, I'm also sharing
• 1:19:03
  those stories. I'm saying, "Hey, we're
• 1:19:05
  pushing buttons for these other
• 1:19:06
  businesses and we've
• 1:19:08
  seen what it takes to grow and grow
• 1:19:10
  profitably." So I have that experience,
• 1:19:12
  but now we're going to
• 1:19:13
  obviously try to apply it to this one.
• 1:19:15
  But yeah, I mean, in the
• 1:19:15
  start of like in 2023, we had
• 1:19:18
  emissions to keep pushing, hitting the
• 1:19:20
  gas. I'm like, "I want to
• 1:19:21
  grow by like 10X." Because that
• 1:19:23
  was just a ridiculous, anxious goal. I'm
• 1:19:25
  like, "We did a million, why
• 1:19:26
  can't we do 10?" And that's
• 1:19:27
  when we started to have to have these
• 1:19:28
  conversations. So I mean, I talked to
• 1:19:30
  everybody under the sun at
• 1:19:31
  that point. If you go scroll back to
• 1:19:33
  2023, you'll see me tweeting about like,
• 1:19:35
  "Who should I talk to?
• 1:19:35
  What about Settle? What about WayFlyer?
• 1:19:37
  What about Clearco who no
• 1:19:38
  longer exists? What about normal
• 1:19:41
  banks? What are lender credits? Can I use
• 1:19:43
  them? How does all this
• 1:19:44
  stuff work?" I mean, I really
• 1:19:45
  didn't have the background outside of
• 1:19:46
  knowing that I needed to prove to these
• 1:19:48
  lenders that I had a
• 1:19:50
  model that was proven and that they could
• 1:19:52
  trust me with that model.
• 1:19:53
  Sure. Yeah. I mean, really,
• 1:19:54
  it started by me just having a ton of
• 1:19:56
  these conversations. And
• 1:19:57
  the one lender that really
• 1:19:58
  stood out to us was WayFlyer. They were
• 1:20:00
  the one that kind of came to
• 1:20:02
  us. And I met with a lot of
• 1:20:04
  their leadership team. I have to give a
• 1:20:05
  shout out to like Patty
• 1:20:06
  Cohen over at WayFlyer. I mean,
• 1:20:08
  the dude basically came to us and said,
• 1:20:10
  "This is what you need to
• 1:20:11
  give me to prove to me that we
• 1:20:13
  should fund you." And a lot of that was
• 1:20:15
  just modeling. It was
• 1:20:16
  modeling cashflow. It was modeling
• 1:20:18
  profits. It was modeling revenue. It was
• 1:20:20
  modeling the whole financial ecosystem.
• 1:20:22
  By doing that exercise, that also helped
• 1:20:24
  you be more intimately
• 1:20:25
  involved in understanding
• 1:20:26
  your own financing with the business or
• 1:20:27
  like revenue growth
• 1:20:29
  and everything. Right?
• 1:20:30
  A hundred percent.
• 1:20:30
  Because we had to prove to them, like,
• 1:20:31
  "This is why we're worth
• 1:20:32
  it. This is what we can do."
• 1:20:35
  Totally. And as an agency founder, owner,
• 1:20:38
  I was good at sales
• 1:20:39
  always, but it's different when
• 1:20:41
  you're convincing someone to give you
• 1:20:43
  hundreds of thousands of
• 1:20:44
  dollars or millions of dollars
• 1:20:45
  at some point, money to hopefully pay
• 1:20:47
  them back and pay them
• 1:20:48
  back the interest. Right?
• 1:20:49
  So I needed to know how those financial
• 1:20:51
  tools worked. Right? So
• 1:20:53
  learning how to read a P&L
• 1:20:54
  properly, learning what a balance sheet
• 1:20:56
  was different than a
• 1:20:56
  P&L, learning how to build
• 1:20:57
  like a 13-week cashflow statement in a
• 1:20:59
  year cashflow statement,
• 1:21:00
  and just knowing how all of
• 1:21:02
  those moving pieces worked was the most
• 1:21:05
  important part of it. Even
• 1:21:06
  though we were a million dollar
• 1:21:07
  business, we had models built that were
• 1:21:10
  as robust as a 30, 40, 50
• 1:21:12
  million dollar business because
• 1:21:13
  they were so in the detail and I was so
• 1:21:15
  in the day-to-day of knowing
• 1:21:16
  dollars and dollars out that
• 1:21:17
  was happening. That's what was absolutely
• 1:21:20
  required of them to
• 1:21:21
  be so confident to say,
• 1:21:23
  "Sure, we'll give you some
• 1:21:23
  money and see what happens."
• 1:21:25
  When you're a business at like the
• 1:21:26
  million dollar size, like you're talking
• 1:21:28
  about how robust these
• 1:21:29
  models are. Like, how did you get... How
• 1:21:31
  did you even get to that
• 1:21:32
  point? Like, how did you make
• 1:21:33
  them that strong? Because at a million
• 1:21:35
  dollars, like, volatility
• 1:21:37
  is an insane thing. Your ad
• 1:21:38
  account could get shut down tomorrow and
• 1:21:40
  your model is completely
• 1:21:41
  broken, especially at that
• 1:21:42
  size. So, like, how did you even get to
• 1:21:44
  the point of knowing what you
• 1:21:45
  needed from a financial models
• 1:21:46
  perspective? I ended up hiring a couple
• 1:21:48
  fractional CFOs in the early days and
• 1:21:51
  spending like a decent
• 1:21:51
  amount of money on that. And then we
• 1:21:53
  brought in an early young
• 1:21:55
  like finance employee, Jacob,
• 1:21:57
  who has been a godsend to us and just an
• 1:22:00
  absolute killer. But he came
• 1:22:01
  in in the fall of 23, right,
• 1:22:03
  as we were really trying to get, you
• 1:22:05
  know, put these models
• 1:22:06
  together. And he helped me do a lot
• 1:22:07
  of this stuff, to be honest. He had a
• 1:22:09
  background in banking. He kind of
• 1:22:11
  understood a lot of these
• 1:22:11
  things. I understood the D2C model, but
• 1:22:14
  he understood like
• 1:22:14
  the financial model. So,
• 1:22:16
  between the two of us and then hiring
• 1:22:18
  these kind of fractional CFOs, we were
• 1:22:19
  able to build something
• 1:22:20
  that was definitely more robust than what
• 1:22:22
  a brand at only a million dollars in
• 1:22:24
  revenue had done. And
• 1:22:25
  I kind of knew that I needed to impress
• 1:22:27
  them to the point that I
• 1:22:27
  knew exactly what I was doing,
• 1:22:29
  which is why I was asking for more money
• 1:22:31
  maybe than a brand should
• 1:22:31
  at only a million dollars in
• 1:22:32
  revenue. So you get this set up, you're,
• 1:22:35
  you know, getting... You got
• 1:22:37
  the funding, you see how it
• 1:22:38
  allows you to scale. You're utilizing it
• 1:22:41
  properly. I mean, obviously one of the
• 1:22:42
  things with Wayflyer
• 1:22:43
  is they get you the funding quickly,
• 1:22:44
  which is a huge value drop, right? Speed
• 1:22:47
  is a big part of it.
• 1:22:48
  We'll talk about that. But so now it's
• 1:22:49
  like 20... You're
• 1:22:51
  forecasting for 2024 and you go to them
• 1:22:54
  and you say, "Totally." We're going to
• 1:22:56
  grow. How do you... Yeah.
• 1:22:58
  There's a story here about
• 1:22:59
  yarn buying. Yeah. Totally. So, I mean,
• 1:23:02
  the biggest thing about
• 1:23:03
  2023 for us was we forecasted
• 1:23:06
  $9 million in revenue and we hit it on
• 1:23:08
  the head. Like hit it on the
• 1:23:10
  head. We did $9 million and
• 1:23:12
  $10,000 in revenue that year. Month over
• 1:23:15
  month was pretty consistent.
• 1:23:17
  We built out this model of how
• 1:23:18
  much we could grow and how much we could
• 1:23:19
  spend and how we would use
• 1:23:21
  that money. I think that's
• 1:23:22
  the most important thing is making sure
• 1:23:24
  that when you're working
• 1:23:25
  with getting debt is knowing
• 1:23:26
  exactly what you're going to use those
• 1:23:28
  dollars for. And for us, we
• 1:23:29
  didn't need it for ad spend.
• 1:23:30
  We didn't need it for marketing dollars
• 1:23:32
  or team. At this point, there
• 1:23:33
  was only three people on the
• 1:23:34
  team. We were very, very small. It was me
• 1:23:36
  and two other people. And
• 1:23:37
  so, yeah. I mean, it was mostly
• 1:23:39
  about saying, "Hey, we're going to go do
• 1:23:41
  $9 million when we went and did it." And
• 1:23:43
  that alone, I think,
• 1:23:44
  is building that trust with a lender is
• 1:23:46
  everything. If you do what
• 1:23:48
  you say you're going to do,
• 1:23:49
  they're going to be more willing to give
• 1:23:50
  you more money in the
• 1:23:51
  future. One of my mentors,
• 1:23:52
  his name is Rick. He's always told me
• 1:23:54
  this statement. He's like,
• 1:23:56
  "Banks are... You're going
• 1:23:57
  to want money from banks to a certain
• 1:23:59
  degree where then the
• 1:24:01
  thing switches where banks are
• 1:24:02
  going to want to give you money when you
• 1:24:03
  don't even need it." So I
• 1:24:04
  didn't say that perfectly,
• 1:24:06
  but basically the phrase is like, "You
• 1:24:08
  need to try to convince
• 1:24:08
  them to a point until your
• 1:24:10
  business is big enough and strong enough
• 1:24:11
  and profitable and
• 1:24:12
  you've proven the amount. And
• 1:24:14
  then they're going to want to give you
• 1:24:15
  too much money that you don't even need
• 1:24:16
  to utilize anymore."
• 1:24:17
  In the early days, it's the complete
• 1:24:18
  opposite. You got to pitch
• 1:24:19
  them and you got to prove to it.
• 1:24:20
  You got to build that trust. So yeah, I
• 1:24:22
  think the big thing for us is the way
• 1:24:24
  that Holo works is we
• 1:24:25
  buy our raw materials ourselves. We
• 1:24:28
  import our raw materials of this alpaki
• 1:24:30
  yarn directly from Peru
• 1:24:31
  in the cash immersion cycle on that
• 1:24:33
  dollar spent is horrible.
• 1:24:35
  We buy our yarn six months
• 1:24:36
  before we can sell it. So we need money
• 1:24:39
  for raw materials before
• 1:24:40
  we can even manufacture the
• 1:24:41
  product, before we can even turn it into
• 1:24:44
  socks, before we can get it at a
• 1:24:45
  warehouse, before we
• 1:24:46
  can even list it for sale. And that was
• 1:24:48
  the main use of this money.
• 1:24:49
  And we were very clear about
• 1:24:50
  how much money we needed to buy in yarns.
• 1:24:53
  We could make socks in the US
• 1:24:54
  and so we could sell them in
• 1:24:55
  Q4. And so we proved that out. I mean,
• 1:24:58
  that was our 2023 goal.
• 1:24:59
  We did it exactly. And then
• 1:25:00
  going back to them in 24 and saying,
• 1:25:02
  "Hey, we want to do 20 million now. We
• 1:25:04
  want a little over double."
• 1:25:06
  We knew what we needed to show them. We
• 1:25:08
  know we needed to show
• 1:25:09
  them these robust models about
• 1:25:10
  demand forecasting for yarn buying.
• 1:25:12
  Here's exactly how we're going to buy it.
• 1:25:14
  Here's the terms that
• 1:25:15
  we've negotiated and gotten better with
• 1:25:16
  our yarn buying. Here's how we've
• 1:25:18
  negotiated terms with
• 1:25:18
  our manufacturer and how we've got a
• 1:25:20
  little bit more cashflow there and how
• 1:25:21
  that's going to help
• 1:25:22
  us be able to pay you back faster. Hey,
• 1:25:24
  we've gotten better
• 1:25:25
  credit card lending options and
• 1:25:26
  better payment terms with them, which
• 1:25:28
  means we're going to have more free
• 1:25:28
  cashflow to pay you back
• 1:25:30
  faster. All these things were basically
• 1:25:31
  the story to tell the lender
• 1:25:33
  how we were going to pay them
• 1:25:34
  back and how they could trust us even
• 1:25:35
  more with more money. So
• 1:25:36
  yeah, Wayflier basically came to
• 1:25:39
  the table as one of the better options.
• 1:25:42
  And because they, like
• 1:25:43
  you said, are fast and when
• 1:25:45
  you're in a high growth business, you
• 1:25:46
  need money yesterday, we're
• 1:25:47
  able to get deals done quickly
• 1:25:49
  and get funded. So yeah, that's really
• 1:25:52
  what I have to say there.
• 1:25:53
  That got us to that next stage.
• 1:25:55
  Yeah, we had our, and again, one more
• 1:25:58
  person, I just have to give
• 1:25:59
  a shout out to, is like Brian
• 1:25:59
  McDermott. He became our new account
• 1:26:01
  manager and him and Jacob
• 1:26:03
  were just battling it out,
• 1:26:04
  making sure that all of our stuff was
• 1:26:06
  fully robust and so that they felt
• 1:26:07
  comfortable funding us. But
• 1:26:09
  they came through again. And without that
• 1:26:12
  debt, we definitely
• 1:26:13
  wouldn't have been able to as a
• 1:26:14
  bootstrap business go from one to nine to
• 1:26:16
  20. I think a lot of
• 1:26:18
  times with Wayflier or with
• 1:26:19
  anybody else, it's like you guys, there's
• 1:26:22
  a lesson in the fact
• 1:26:23
  the way that you utilized
• 1:26:25
  and got creative with them and structured
• 1:26:27
  repayment terms and
• 1:26:30
  caps. And can you talk
• 1:26:32
  about that a little bit in terms of just,
• 1:26:35
  you said, this is what we
• 1:26:36
  can do or were they more like,
• 1:26:39
  we basically- We looked at your numbers,
• 1:26:40
  we know this is what you can do.
• 1:26:42
  Yeah, I mean, it was a little bit of
• 1:26:43
  both. I mean, they're
• 1:26:44
  obviously always going to
• 1:26:45
  optimize for what's best for them. But
• 1:26:47
  because we started to
• 1:26:49
  really understand our financials
• 1:26:50
  so well and our cash flow so well, we
• 1:26:51
  came back to them and said,
• 1:26:52
  "Hey, this is what you proposed
• 1:26:54
  to us, but we're going to come back to
• 1:26:55
  you and we want flat fees.
• 1:26:56
  This is how we're going to pay
• 1:26:57
  you back as flat numbers and we're going
• 1:26:59
  to structure it in a
• 1:27:00
  monthly payback. It's going
• 1:27:01
  to get you the same number that you want
• 1:27:02
  at the end of the day and
• 1:27:03
  it's going to work for both of
• 1:27:04
  us." And they were definitely flexible
• 1:27:06
  there and willing to work
• 1:27:07
  with us. And I think that that's
• 1:27:09
  truly why we ended up working with them
• 1:27:10
  and continue to work with
• 1:27:11
  them. Some of these other
• 1:27:13
  lenders are very, very strict. They're
• 1:27:15
  like, "Here's the payback schedule.
• 1:27:16
  Here's how it works.
• 1:27:17
  You pay us back every week. It's a
• 1:27:18
  percentage of revenue we
• 1:27:19
  rip straight out of Shopify."
• 1:27:21
  Everyone is a little bit different, but
• 1:27:23
  they were always willing to
• 1:27:25
  try to find the sweet spot
• 1:27:26
  because we had proven now to them, now
• 1:27:29
  almost at two years of
• 1:27:30
  our relationship with them,
• 1:27:31
  what worked best for us and
• 1:27:32
  how we could pay them back.
• 1:27:34
  So how did you... You kind of are
• 1:27:36
  aligning talking about,
• 1:27:37
  "Okay, here's the inventory and
• 1:27:39
  the revenue cycles that we have." How is
• 1:27:43
  it a lump sum they're
• 1:27:44
  giving you? Is it money that's
• 1:27:45
  coming in regularly? How are you working
• 1:27:48
  all of this together with
• 1:27:50
  them? Or is it an agreement
• 1:27:51
  for a long period of time? Or how does
• 1:27:53
  that work? Yeah. I mean, the technical
• 1:27:55
  term I think that we
• 1:27:56
  had with WaveFlyer that year was like a
• 1:27:58
  letter of intent, which is
• 1:28:00
  tied to a line of credit,
• 1:28:01
  essentially, set up. So we had so many
• 1:28:04
  funds accessible planned
• 1:28:06
  for the year. And based on
• 1:28:07
  our models, we knew when we needed to
• 1:28:09
  draw down on that. And they
• 1:28:10
  were going to keep those funds
• 1:28:11
  ready for us. So it's like we took it all
• 1:28:13
  in one shot. It's definitely
• 1:28:15
  strategic. So for their own
• 1:28:17
  sanity, it's not like we were taking a
• 1:28:19
  bunch of money down all at
• 1:28:20
  once and hopefully we'd pay
• 1:28:22
  them back. It was all based around the
• 1:28:24
  cash flow needs of the
• 1:28:24
  business. So I do think that that
• 1:28:27
  was beneficial too. I think that also
• 1:28:28
  made us more cautious with
• 1:28:30
  the dollars as well. It made
• 1:28:31
  us more strategic with how we were going
• 1:28:32
  to spend every dollar
• 1:28:33
  that we borrowed for them.
• 1:28:34
  And yeah, I think that that's how we
• 1:28:36
  ended up working it out
• 1:28:37
  was it would come in tranches
• 1:28:39
  as needed, but a predetermined amount
• 1:28:41
  that they would be able to fund us over
• 1:28:42
  the course of a year.
• 1:28:43
  I mean, the biggest takeaways, I guess,
• 1:28:45
  of working with that and working with
• 1:28:47
  WaveFlyer specifically
• 1:28:49
  is just starting with just transparency
• 1:28:51
  and being very honest of
• 1:28:53
  where you're at with your brand.
• 1:28:54
  I think over-promising, over-committing,
• 1:28:58
  making shit up is never
• 1:28:59
  going to get you the long-term
• 1:29:00
  results that you want. And you're also
• 1:29:02
  going to end up having this
• 1:29:03
  financial stress, which if
• 1:29:05
  there's ever been any stress on my life,
• 1:29:07
  financial stress is the
• 1:29:08
  worst stress. Product problems,
• 1:29:11
  things get lost at sea, whatever.
• 1:29:13
  Facebook ads go to shit during a week.
• 1:29:15
  Those are all okay. Financial
• 1:29:16
  stress is the biggest stressor. So I
• 1:29:18
  think just starting with transparency,
• 1:29:20
  finding them everything
• 1:29:20
  that they ask for, I think is the most
• 1:29:23
  straightforward piece is just not being
• 1:29:25
  afraid to be like, "Hey,
• 1:29:25
  here's my business. Here's how I'm
• 1:29:27
  thinking about it." Making sure that
• 1:29:29
  their underwriters have
• 1:29:30
  truly everything that they need to feel
• 1:29:32
  like they can fund you.
• 1:29:33
  And then just letting them
• 1:29:34
  know your goals and how you're going to
• 1:29:35
  back into it. I think the biggest two
• 1:29:37
  things that they look
• 1:29:37
  for is what is your ability to pay back
• 1:29:42
  funds and how are you going
• 1:29:45
  to pay them back truly based on
• 1:29:46
  a financial model? And two, why do you
• 1:29:48
  need it? I think a lot of
• 1:29:50
  people think, "I need money to
• 1:29:51
  grow." Well, what is that going to be
• 1:29:52
  used for? Is that going to be
• 1:29:53
  used for 3PL fees or is that
• 1:29:55
  going to be used for buying actual
• 1:29:56
  product that's going to let you grow the
• 1:29:58
  business and increase
• 1:29:59
  returning customer rate, which is more
• 1:30:01
  profitable for you than just
• 1:30:01
  continuing to sell the same
• 1:30:02
  thing? So I think being strategic about
• 1:30:04
  what you're using that
• 1:30:05
  money for and having that very
• 1:30:06
  clearly laid out for them is huge. But
• 1:30:08
  yeah, I think that's the
• 1:30:09
  first one. The models is
• 1:30:11
  everything else. Having financial models
• 1:30:14
  that actually make sense
• 1:30:15
  that tell the story of how
• 1:30:16
  you're going to use those dollars from a
• 1:30:18
  12 month P&L to an
• 1:30:20
  inventory forecast, to inventory
• 1:30:23
  forecast that backs into your purchasing
• 1:30:25
  scheduling. Giving them
• 1:30:27
  truly your full roadmap of,
• 1:30:28
  "Here's how I run the business. Here's
• 1:30:29
  how I make financial
• 1:30:30
  decisions. Here's how I'm going to do
• 1:30:32
  it." Plus then a 12 month cash flow
• 1:30:33
  forecast. To them, then they have
• 1:30:35
  everything in their hands
• 1:30:37
  to make a decision and say, "Should I
• 1:30:38
  fund them or not?" Because
• 1:30:39
  you're giving them all of your
• 1:30:40
  decision making 12 months in advance. And
• 1:30:42
  again, you can be wrong.
• 1:30:43
  There's degrees where they'll
• 1:30:45
  work with you and try to find
• 1:30:46
  flexibility. But the more thought through
• 1:30:48
  you can do this and the more
• 1:30:49
  you can actually use previous data or
• 1:30:51
  previous history to try and
• 1:30:52
  show them how you've made those
• 1:30:54
  decisions, that's everything. And then
• 1:30:55
  the last bit, and this is more
• 1:30:57
  a tip for funding with really
• 1:30:59
  anybody, but specifically what we found
• 1:31:01
  with Wayflyers, get that
• 1:31:02
  funny locked in that next round
• 1:31:04
  before you need it. When things are good,
• 1:31:06
  get them the statements,
• 1:31:07
  get them the documents,
• 1:31:08
  get them everything and tell them where
• 1:31:09
  you're headed and where
• 1:31:10
  you want to go. Obviously,
• 1:31:11
  there can be downturns. There can be hard
• 1:31:12
  moments in a business. So
• 1:31:14
  having all that prepared so that
• 1:31:16
  you can have the money ready to rock when
• 1:31:18
  you need it is just super
• 1:31:19
  important. And that's where
• 1:31:20
  people on my team have done a really good
• 1:31:22
  job and I have to give
• 1:31:22
  them kudos to because they've
• 1:31:24
  played proactively versus
• 1:31:25
  reactively when we need debt.
• 1:31:27
  I think all that stuff is super helpful.
• 1:31:31
  I appreciate you
• 1:31:31
  going through the tips and
• 1:31:32
  everything. I feel like let's be
• 1:31:34
  transparent. Debt is one
• 1:31:37
  of the main reasons why
• 1:31:40
  it's a main driver of
• 1:31:41
  bankruptcy with the ETC brands, right?
• 1:31:45
  It's expensive, can be expensive. Who
• 1:31:49
  shouldn't take it? Where
• 1:31:51
  does it not make sense? I mean,
• 1:31:53
  I think you've laid it out to the point
• 1:31:54
  of if somebody's really
• 1:31:56
  clear with what they're
• 1:31:57
  trying to do, they're really clear with
• 1:31:59
  how they're going to use it,
• 1:32:00
  that makes sense. But I think
• 1:32:01
  maybe it's just the opposite. There's not
• 1:32:04
  a clear vision. They don't
• 1:32:05
  have good financials. They
• 1:32:06
  don't have a proven track record. Where
• 1:32:08
  are situations where
• 1:32:09
  you've seen debt be taken on
• 1:32:11
  and you know that's not the right call? I
• 1:32:12
  think it's the inverse of what I said,
• 1:32:16
  so we can just start with that. So when
• 1:32:18
  you don't have those
• 1:32:19
  things, I wouldn't be comfortable
• 1:32:20
  doing it. If I didn't feel like I had all
• 1:32:22
  the tools ready to
• 1:32:25
  present to them, I wouldn't have
• 1:32:27
  even felt comfortable having money. What
• 1:32:29
  would I do with it? If I
• 1:32:29
  don't know what I'm exactly
• 1:32:30
  going to do with it, when I'm going to
• 1:32:31
  spend it, where it's going to
• 1:32:32
  go. Knowing that I owe it back
• 1:32:33
  to somebody, just inherently that is a
• 1:32:36
  pressure that you hold, or
• 1:32:38
  at least I do internally.
• 1:32:39
  Having that whole plan is the most
• 1:32:41
  important piece. So
• 1:32:42
  if you don't have that,
• 1:32:42
  probably shouldn't take on debt. The
• 1:32:44
  other area that we've seen brands,
• 1:32:46
  like sadly through some clients through
• 1:32:47
  Homestead or just other
• 1:32:48
  brands just in the ecosystem,
• 1:32:50
  even some of the brands that we bought in
• 1:32:51
  the portfolio historically, I mean,
• 1:32:52
  they took on debt to run Facebook ads,
• 1:32:54
  things like that. It's
• 1:32:55
  like, you're taking on money,
• 1:32:58
  you're going to pay 10% to 20% APR
• 1:33:01
  interest on it. And you're going to try
• 1:33:04
  and turn a dollar into
• 1:33:04
  more dollars, but you're not doing really
• 1:33:06
  the math on how much return
• 1:33:08
  you need to make off of the
• 1:33:09
  dollar you're investing into something
• 1:33:11
  that isn't guaranteed. The guaranteed
• 1:33:14
  thing about us is if we
• 1:33:15
  buy yarn to make stocks, we're getting
• 1:33:17
  yarn. I know I'm getting
• 1:33:19
  yarn and I'm getting what I'm
• 1:33:20
  paying for. If I go use it for something
• 1:33:22
  that has a higher risk
• 1:33:23
  potential, I don't know that I'm
• 1:33:24
  going to get back what I've planned. So
• 1:33:27
  to me, that's where I think
• 1:33:28
  using debt for things like
• 1:33:30
  inventory is a great use. It's an asset,
• 1:33:32
  at least it can be turned
• 1:33:33
  into something. Using it for
• 1:33:36
  inventory that are risky, so maybe new
• 1:33:39
  products I would be
• 1:33:40
  cautious to use it for.
• 1:33:41
  Taking big swings like, "Hey, our
• 1:33:43
  business isn't working really well. Maybe
• 1:33:45
  if we go take this big
• 1:33:46
  swing with this influencer or partner,
• 1:33:47
  new product launch," probably wouldn't
• 1:33:49
  use debt to go do that.
• 1:33:50
  I would definitely try to self fund that
• 1:33:51
  because it could go to
• 1:33:52
  zero. So I think it's using it
• 1:33:54
  for things that don't have the risk in
• 1:33:56
  itself is usually when debt is more
• 1:33:59
  appropriately useful.
• 1:34:01
  It is a risk through and through. That is
• 1:34:02
  the point of it. True.
• 1:34:04
  Yeah. And that's why they
• 1:34:05
  charge interest. That's part of the
• 1:34:07
  business is they take on the
• 1:34:08
  risk of you and you take on the
• 1:34:09
  risk of having to pay someone back. But
• 1:34:11
  that's how I think about
• 1:34:11
  it. Yeah. It's very cool. It's
• 1:34:14
  clearly a relationship. It's something
• 1:34:15
  that has allowed you to
• 1:34:17
  scale. I know there's plenty of
• 1:34:18
  other examples of mutual friends too that
• 1:34:20
  Wayflyers helps scale. So utilizing this
• 1:34:23
  tool, utilizing debt
• 1:34:24
  as a tool and a strategic lever. So it's
• 1:34:26
  cool to go through it. I
• 1:34:28
  think we should transition into
• 1:34:29
  a new segment of the show called
• 1:34:31
  Financial Thought Cups,
• 1:34:32
  where we talk about things that
• 1:34:34
  we've seen that are messed up in
• 1:34:36
  finances. One of my personal
• 1:34:37
  favorites is when people get a
• 1:34:40
  credit line from Meta, I'm always like,
• 1:34:43
  "You're NGMI. You're not
• 1:34:46
  going to." It just makes me
• 1:34:47
  nervous. I don't know how you guys feel.
• 1:34:49
  But when I see that
• 1:34:50
  happening and them not being able to
• 1:34:51
  pay via the credit card, that makes me a
• 1:34:53
  little nervous. One of the
• 1:34:56
  first times I was ever exposed
• 1:34:57
  to a Meta credit line was when I got
• 1:35:00
  access to an ad account that
• 1:35:01
  owed Meta a million dollars.
• 1:35:03
  And they didn't pay it. And they still
• 1:35:05
  haven't paid it. And there was no
• 1:35:06
  intention to pay it.
• 1:35:06
  And this was years ago. And I was like,
• 1:35:09
  "Oh, I didn't know that
• 1:35:10
  they would let you do that."
• 1:35:11
  But they thought you should do that. And
• 1:35:13
  that was crazy. So yeah,
• 1:35:15
  that's my contribution to the
• 1:35:17
  Financial Thought Cups. I've seen... I
• 1:35:18
  mean, we've had clients take Shopify
• 1:35:20
  capital loans and I don't
• 1:35:22
  have a strong opinion. I don't know
• 1:35:23
  enough about this. So this episode was
• 1:35:26
  super interesting for
• 1:35:26
  me to just sit back and listen because I
• 1:35:28
  don't know and I don't know
• 1:35:29
  here. And I know that maybe
• 1:35:30
  Shopify capital interest rates are not
• 1:35:32
  the best for people. But if you need
• 1:35:35
  money with intent and
• 1:35:36
  you have plans behind it, it can still
• 1:35:39
  work, I'm sure. But generally
• 1:35:41
  the reasons they took it was,
• 1:35:42
  okay, they're probably under some kind of
• 1:35:44
  pressure. They feel like they need it.
• 1:35:45
  Understandable in the moment. But to your
• 1:35:47
  point, it was to pay down a
• 1:35:49
  credit card for a marketing
• 1:35:50
  spend that was never going to pay itself
• 1:35:52
  back or was going to take
• 1:35:53
  years to pay itself back.
• 1:35:55
  Taking on debt. It's just like anything
• 1:35:57
  else when you do in your business that
• 1:35:59
  if it's a short term fix and there's not
• 1:36:02
  a plan of how that will be avoided,
• 1:36:04
  then it's a band aid and that's going to
• 1:36:06
  be something that
• 1:36:07
  you're going to lean on and
• 1:36:08
  it's not a good thing. It's like you need
• 1:36:09
  a plan for how you aren't
• 1:36:11
  going to necessarily need
• 1:36:12
  this short term stuff. If you're talking
• 1:36:15
  about what Zach's
• 1:36:15
  talking about with Wayflyer,
• 1:36:17
  it's a long term relationship. They know
• 1:36:19
  his business intimately.
• 1:36:21
  He's repaying. It's a good
• 1:36:22
  thing. They're unlocking growth that he
• 1:36:24
  wouldn't have, which is awesome. But
• 1:36:27
  there's all these...
• 1:36:27
  But when you have a Shopify capital loan,
• 1:36:31
  it's like that I think is
• 1:36:32
  okay, but you have to have
• 1:36:34
  a plan with these small little things of
• 1:36:36
  how you're going to
• 1:36:37
  actually not be dependent on it
• 1:36:39
  and how you're going to build the
• 1:36:41
  business to the point of
• 1:36:42
  real growth. Because otherwise,
• 1:36:43
  that kind of stuff, if you're not smart
• 1:36:45
  about it, obviously the
• 1:36:47
  interest can kill you. It can
• 1:36:48
  double and triple down on you. And then
• 1:36:49
  next thing you know, you're taking out
• 1:36:50
  credit lines for metal.
• 1:36:52
  It's bad. And the reality is too, all
• 1:36:56
  this goes back to what you guys have
• 1:36:57
  talked about on this
• 1:36:58
  podcast a bunch, which is you have to
• 1:37:00
  know your numbers. You have
• 1:37:02
  to know the cost of landed
• 1:37:04
  product, the pick pack fees. It has to
• 1:37:06
  all be part of this
• 1:37:07
  equation because we've all seen it
• 1:37:10
  running agencies. People walk into a
• 1:37:12
  corner and then they don't know and
• 1:37:14
  they're looking only
• 1:37:15
  at Meta ROAS and you're like, "There's
• 1:37:16
  more to the story here."
• 1:37:18
  And next thing you know,
• 1:37:20
  they're not making anything because they
• 1:37:22
  haven't known the full
• 1:37:23
  picture of the business.
• 1:37:24
  Yeah. Only contribution to financial
• 1:37:26
  fuckups is recently heard
• 1:37:28
  of a brand that has gotten
• 1:37:29
  pretty big that was postponing state
• 1:37:33
  sales tax and just got hit
• 1:37:35
  with a ringer there. So make sure
• 1:37:38
  you're looking into that because that can
• 1:37:41
  be one that can definitely
• 1:37:41
  punch you in the ass if you're
• 1:37:42
  not paying your taxes. It turns out not
• 1:37:44
  paying your taxes is rough.
• 1:37:48
  That's going to be a really
• 1:37:50
  difficult future for you and the state
• 1:37:52
  and the federal government will find you.
• 1:37:55
  Yes. But yeah, no, I mean, there's a
• 1:37:58
  million stories, right? I
• 1:37:59
  mean, there's a lot of these
• 1:38:00
  and it's sad. It's a bummer that a lot of
• 1:38:01
  these brands go through
• 1:38:02
  this to the point where they
• 1:38:03
  run into too much debt and the debt
• 1:38:05
  payments alone monthly, they just can't
• 1:38:07
  cover. And so things go
• 1:38:08
  under. But I think the best bet there is
• 1:38:12
  just having the plan, really
• 1:38:13
  understanding your numbers,
• 1:38:14
  having the plan, knowing what you're
• 1:38:15
  going to use the money for and following
• 1:38:17
  through with what you
• 1:38:18
  say you're going to do. And if you can do
• 1:38:19
  those things and it might
• 1:38:21
  require working your ass off
• 1:38:22
  and putting a bunch of hours in to make
• 1:38:23
  sure things go to plan, if you can do
• 1:38:25
  that and that can compound
• 1:38:26
  your over a year, it can really give you
• 1:38:27
  the extra fuel that you need
• 1:38:29
  to really push growth. And we
• 1:38:31
  at Hala would not be hitting the numbers
• 1:38:33
  that we're hitting and the
• 1:38:34
  volume that we're hitting as
• 1:38:34
  quickly as we were being a bootstrap
• 1:38:35
  company and not taking any
• 1:38:37
  equity rounds without debt. So
• 1:38:40
  it's been incredibly useful for us. Well,
• 1:38:42
  Zach, thanks for sharing
• 1:38:43
  the story. And if people have
• 1:38:45
  questions about it, they can email me,
• 1:38:47
  Andrew at FoxwellDigital.com.
• 1:38:48
  I'm happy to get you over to
• 1:38:50
  Zach and get connected or hit the guys up
• 1:38:52
  on Twitter and we can
• 1:38:53
  get you connected with the
• 1:38:54
  WayFlyer team. That's not a problem.
• 1:38:56
  Before we go, it's important to say that
• 1:38:57
  WayFlyer is sponsoring
• 1:38:58
  this episode, of course. However, we only
• 1:39:01
  work with the sponsors
• 1:39:02
  that we truly trust and know.
• 1:39:04
  And so that's why we've chosen to work
• 1:39:06
  with them on this because we
• 1:39:07
  think it's an important thing
• 1:39:08
  to unlock and we have bills to pay. So
• 1:39:11
  back off. So thank you for
• 1:39:13
  listening and we appreciate all
• 1:39:15
  of you and we'll look forward to the next
• 1:39:16
  episode. Thanks everyone.
• 1:39:20
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• 1:39:27
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• 1:39:30
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• 1:39:32
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• 1:39:47
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• 1:39:48
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• 1:39:49
  Yeah, please go check us out on YouTube,
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  health for the day. So please say
• 1:40:00
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• 1:40:01
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• 1:40:04
  listening. Honestly.